You are a Canadian exporter expecting a payment of USD 1M in three months. You want to hedge your currency risk. After looking at prevailing interest rates and exchange rates, you decide to hedge forward. Ignoring transactions costs, must US exporters expecting payment in Canadian dollars wish to hedge forward or spot?

Q: If the current exchange rate is $1.70/£, the one-year forward exchange rate is $1.80/£, and the…

A:

Q: If the U.S. economy experiences growth in the future, the property will be worth $50,000,000 and the…

A: Data given:: i)   Growth: Property will be worth $50,000,000 and the exchange course of 1 dollar…

Q: Assume you are in India and borrowed 800,000 Rs from one of your friends who lives in Australia.…

A: Given,  Amount borrower = 800000INR Home currency = Indian INR Foreign Currency = Australian $  Spot…

Q: Suppose that you are a U.S.-based importer of goods from the United Kingdom. You expect the value of…

A: In this we have to calculate no arbitrage price according to interest rate parity principles.

Q: Assume you are in India and borrowed 800,000 Rs from one of your friends who lives in Australia.…

A: The question is related to forex management. The details are given below.

Q: Suppose the risk free rate in pounds (£) is 2.67% and the risk free rate in US dollars ($) is 5.03%.…

A: The forward exchange rate should be arbitrage-free because if the price is different from the…

Q: Cecilia who is a currency trader in Japan observes the following market conditions: • Annual…

A: Theoretical Forward rate = Current Spot Exchange rate x (1+Interest rate in Home…

Q: If the current exchange rate is $1.65/£, the one-year forward exchange rate is $1.85/£, and the…

A: Given information: Currency exchange rate is $1.65/£ One year forward exchange rate is $1.85/£…

Q: If the current exchange rate is $1.60/£, the one-year forward exchange rate is $1.85/£, and the…

A: Given data, Current or Spot Exchange rate = $1.60/£ One-year forward Exchange rate = $1.85/£…

Q: An Omani importer will receive commodities from USA and he has to pay an amount of USD 250,000 next…

A: The answer is option (d) [ i.e Forward market]  Refer step 2 for explanation

Q: The treasurer of a major U.S. firm has $43,129,609 to invest for three months. The annual interest…

A: Here, Investment amount is $43,129,609Investment Period is 3 Months U.S Interest Rate is 0.37% per…

Q: The interest on a risk free US treasury is 2.75%, while the interest on a risk free Lebanese…

A: Foreign Exchange Rate is the exchange rate at which the currency of one country exchanges with…

Q: Assume that Stevens Point Co. has net receivables of 150,000 Singapore dollars in 90 days.  The spot…

A: Forward hedge is an agreement to buy or sell an asset at some future date at a stated price in…

Q: Assume you are in India and borrowed 800,000 Rs from one of your friends who lives in Australia.…

A: Foreign Exchange Rates: The amount of money that is required to buy one unit of foreign currency…

Q: bought a 1-year U.S. Treasury security at a price of $9,708.74, with a maturity value of $10,000.…

A:

Q: Suppose the risk free rate in pounds (£) is 5.71% and the risk free rate in US dollars ($) is 7.95%.…

A: The covered interest rate parity ensures the determination of future exchange rates without…

Q: A British company has a USD 1 million payable in two months.How can the British company hedge the…

A: Hedging means techniques or procedures used to eliminate or reduce the risk exposure to due to…

Q: Suppose a U.S. commercial bank has made a loan to a company in the Eurozone. The loan is for 200…

A: Given, Loan = 200 million euros

Q: The chapter demonstrated that a firm borrowing in a foreign currency could potentially end up paying…

A: The cost of debt is the minimum rate on the funds provided to the firm as a debt. The cost of debt…

Q: A US based investor plans to invest $44,400 in Russia, where the interest rate is 6.65%. If the…

A: While investing in other country, first exchange rate shall be applied and then interest rate of…

Q: What actions, if any, should you take?

A: In consequence, the US dollar($) buying power will rise. Furthermore, the value of US debt relevant…

Q: What is the rate of return to the Swiss investor?

A: The Swiss francs paid at the time of purchase of the treasury bill is:

Q: he following Information should be used for Questions 1 and 2. The treasurer of X wants to hedge an…

A: Forward contract:  Payment = Amount in dollars / Forward rate   Stages to hedge foreign currency…

Q: Assume you are in India and borrowed 800,000 Rs from one of your friends who lives in Australia.…

A:

Q: You have bid for a possible export order that would provide a cash inflow of €1 million in 6 months.…

A: A currency forward is a binding contract where the amount, the exchange rate, and the time are…

Q: Suppose that the treasurer of IBM has an extra cash reserve of $100,000,000 to invest for six…

A: Exchange rate risk is the risk of unexpected changes in the two countries' exchange rates. The…

Q: A year ago, a Swiss investor bought a 1-year U.S. Treasury security at a price of $9,708.74, with a…

A: Here is the approach adopted:The computation of the Rate of return is done as:

Q: If the current exchange rate is $1.35/£, the 1-year forward exchange rate is $1.45/£, and the…

A: Current exchange rate $1.35/ £ 1 year forward exchange rate = $1.45 /£ British government bill = 3%…

Q: Suppose the spot rate of the yen today is $0.0100 while the three-month forward rate is $0.0096. How…

A: The spot rate is lower than the forward rate, implying that the currency is trading at a premium.…

Q: You are the trade advisor to a multinational company with an investment of US1,500,000.  The…

A: Cross rate is the exchange rate between two currencies which is derived by taking in to…

Q: Suppose that the treasurer of IBM has an extra cash reserve of $400,000 to invest for six months.…

A: Given information, Interest rate (I$)=4.3/2 =2.15% Interest rate (I€)= 3.2/2 =1.6% Spot exchange…

Q: ABC Co. expects a payment from an American customer in 30 days. To hedge its currency exposure, ABC…

A: Solution:- Forward means entering into an agreement to sell or buy something on a future date at…

Q: Raton Co. is a U.S. company that has net inflows of 100 million Swiss francs and net outflows of 100…

A: Computation of net cash inflows or cash outflows of Raton co. in US$: Raton Co. has a Net inflow:…

Q: [Speculative Attack]Exchange Rate of 1 dollar to 24 Baht with a Foreign reserve of 40 billion US…

A: The calculation of $800 million into baht as follows:

Q: If the current exchange rate is $1.95/£, the 1-year forward exchange rate is $2.05/£, and the…

A: Current exchange rate=1.95Forward exchange rate=2.05Interest rate on british government bills=7%

Q: The treasurer of IBM does not wish to bear any exchange risk. Where should he/she invest to maximize…

A: Information Provided: Cash Reserve = $100,000,000 United States interest rate = 8% (six-month)…

Q: We are a car dealership in NOLA.  We will import Japanese Cars (Suzuki) for JPY 200,000,000 We will…

A: Transactions for hedging  1) Pay 20 Million JPY in 3 months - Foreign exchange risk involved 2)…

Q: A friend of yours tells you that in Japan a specific Japanese treasury note matures for $1000 in two…

A: “Since you have posted a question with multiple sub-parts, we will solve first three sub-parts for…

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.