Question 1: : Assume that You are risk manager at ABCInvestment. ABC Investment lends 100.000.000 USD for 330day and borrow 80.000.000 EUR to finance a new project for180 day. Nowadays investors expect high volatility in FX andwant to hedge itself. Find forward rate using exchange andinterest rates below.USD/TL: 5,8725/5,9850 EURO/TL: 6,6700/6,7250 USDfaiz oranı: 4,50/5,00 EURO Faiz Oranı: 6,25/7,50 TLLIBOR:12,25/14,00

Given information : Lending amount = 100,000,000 USD Days of lending = 330 Borrowing Amount =…

Answered: Question 1: : Assume that You are risk…

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter4: Exchange Rate Determination

Section: Chapter Questions

Problem 26QA

See similar textbooks

Similar questions

Assume that You are risk manager at ABC Investment. ABC Investment lends 100.000.000 USD for 330 day and borrow 80.000.000 EUR to finance a new project for 180 day. Nowadays investors expect high volatility in FX and want to hedge itself. Find forward rate of ABC Inc. using exchange and interest rates below USD/TL: 5,8725/5,9850                  EURO/TL: 6,6700/6,7250     USD interest rate: 4,50/5,00 EURO interest rate: 6,25/7,50 LIBOR of sales rate: 12,25/14,00
Assume that You are risk manager at ABC Investment. ABC Investment lends 100.000.000 USD for 330 day and borrow 80.000.000 EUR to finance a new project for 180 day. Nowadays investors expect high volatility in FX and want to hedge itself. Find forward rate using exchange and interest rates below USD/TL: 5,8725/5,9850                  EURO/TL: 6,6700/6,7250     USD faiz oranı: 4,50/5,00 EURO Faiz Oranı: 6,25/7,50   TLLIBOR: 12,25/14,00
Suppose that the return on a U.K. treasury bill is eight percent annum and the return on a U.S. treasury bill is eight percent annum and that you had $1,000,000 earmarked for short term investment for a period of a month. In which of the securities would you place your money? (Assume you are not a speculator). Show your calculations. 1 British pound (spot)                                                  $1.7748 1 British pound (30-day futures) $1.7776
1 A financial institution has the following assets: • A portfolio of 10-year zero-coupon bonds with a face value of $22 million and currently yielding 7.6% • A €8 million trading position in spot euros, with the current exchange rate of $1.43/€ • A $16 million trading position in equities Calculate the DEAR for a portfolio of these three assets. The correlation coefficients are 0.27 for the bonds and the euros, -0.24 for the bonds and the equities, and 0.33 for the equities and the euros.
A financial institution has assets denominated in British pound sterling of $125 million andsterling liabilities of $100 million.a) What is the FI's net exposure?b) Is the FI exposed to a dollar appreciation or depreciation?c) How can the FI use futures or forward contracts to hedge its FX rate risk? d) What is the number of futures contracts to be utilized to hedge fully the FI's currencyrisk exposure?e) If the British pound falls from $1.60/£ to $1.50/£, what will be the impact on the FI'scash position?f) If the British pound futures price falls from $1.55/£ to $1.45/£, what will be the impacton the FI's futures position.
Find the hedge ratio a 1-period at-the-money put option on ¥300,000. The spot exchange rate is ¥100 = $1.00. In the next period, the yen can increase in dollar value by 15 percent or decrease by 10 percent. The risk-free rate in dollars is i$ = 5%; The risk-free rate in yen is i¥ = 1%. A.-0.44 B.-0.66 C.-0.60 D.-0.40
Suppose a bank enters a repurchase agreerment in which it agrees to sell Treasury securities to a correspondent bank at a price of $9.99,838 with the promise to buy them back at a price of $10.000,073. Calculate the yield on the repo if it has a 6-day maturity. (write your answer in percentage and round it to 2 decimal places)
Suppose you borrow RM10,000,000 in the interbank money market at a KLIBOR yield of 6% p.a for aterm of 1 month. Should you buy or sell KLIBOR futures contract if you were to hedge against interest rate risks?
Assume that you are running an Australia based company which has an account payable of EUR 125,000 due in three months. You decide to hedge out the associated foreign exchange risk using futures contracts. A futures contract of EUR125,000 is selling at A$1.5410 per euro. Suppose the next three days’ settlement prices are A$1.5399, A$1.5480, and A$1.5410. The initial margin of your performance bond account is $2,000 and maintenance margin is $1,500. What is your margin account balance at the end of the first day and what is the balance of this account at the end of the third day?
Finance The practice of investing in a currency that offers the higher return on a covered basis is known as covered interest arbitrage. Currently, the six month Euro Libor rate is -0.52% per annum, and the six month TR libor rate is 18.06% per annum. If the spot rate is 8.5013TRY per Euro and the forward rates are as stated below, Forward Points EURTRY 1M FWD 1003 EURTRY 3M FWD 3411 EURTRY 6M FWD 7096 EURTRY 1Y FWD 14507 a) What is 6M Forward rate for euro? b) Do you have a covered interest arbitrage opportunity? c) If yes, how? d) How much is the arbitrage amount you can enjoy if you can borrow upto 1 million euros or its equivalent Turkish Lira?
A financial institution owns a portfolio of options dependent on the US Dollar Sterling exchange rate. The delta of the portfolio with respect to percentage changes in the exchange rate is 7.3. If the daily volatility of the exchange rate is 0.5% and a linear model is assumed, calculate the estimated 10-day 95% VaR for the portfolio.
A risky $420,000 investment is expected to generate the following cash flows: Year 1 2 3 4$ 102,700 $ 163,030 $ 160,824 $ 135,200 If the firm’s cost of capital is 12 percent, should the investment be made?. Use a minus sign to enter a negative value, if any. Round your answer to the nearest dollar.NPV: $ Should The investment be made? An alternative use for the $420,000 is a four-year U.S. Treasury bond that pays $25,200 annually and repays the $420,000 at maturity. Management believes that the cash inflows from the risky investment are equivalent to only 70 percent of the certain investment, which pays 6 percent. Should the investment be made? Use Appendix B to answer the question. Do not round other intermediate calculations. NPV: $ Should The investment be made?

SEE MORE QUESTIONS

Recommended textbooks for you

International Financial Management

Finance

ISBN:

9780357130698

Author:

Madura

Publisher:

Cengage

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

International Financial Management

Finance

ISBN:

9780357130698

Author:

Madura

Publisher:

Cengage

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

SEE MORE TEXTBOOKS