Suppose you, a German importer, expect to pay $1 million in 90 days for taking delivery of import goods from a U.S. exporter. St = $1.14/€; Ft, k = $1.16/€, where k =90 days. If St+k = $1.15/€, what would be the gain or loss from the forward hedge relative to remaining unhedged?

Q: Please use information to answer the question below: A US firm's expected Accounts Payable in UK due…

A: Under Money Market Hedge If we will required the amount to paid in other country then in such case…

Q: Suppose a German importer owes an Australian exporting company 150,000 AUD, due in three months.…

A: Importer is the person who purchase the goods from foreign country. When the goods are purchased by…

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 contract where the exchange rate, the time period, and the amount are fixed.…

Q: Suppose you are a U.S. investor who is planning to invest $845,000 in Mexico. Your Mexican…

A: DATA GIVEN: Investment amount  = $845,000 Investment gain in Mexico = 10.6% Exchange rate: Original…

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: 1. Suppose your company just exported 1 million dollars goods to USA on 15 December 2016, the spot…

A: The question is related to the Money market hedge. Home currency is RMB and foreign currency is US$.…

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: Please use this information to answer the question below: A US firm's expected Accounts Receivables…

A: Given: Accounts receivables = EUR 15,000,000 Spot rate 1EURO = USD 1.25 Interest rate in US = 5%…

Q: Suppose you exported something from Mexico to the US and were quoted a price (payable immediately)…

A: Export: A product or service that is manufactured in one nation but sold to a buyer in another…

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 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: n investor has

A: Given information : Amount available for investment $2,000,000 US interest rate 2% German…

Q: The spot AUD/JPY exchange rate today is 80 yen per Australian dollar. The five-year forward AUD/JPY…

A: The question is based on the concept of Financial Management.

Q: he current market exchange rate is 2.2 francs per pound. Suppose you need to buy 6 pounds using…

A: In international business the exchange rate between the currencies play very important role in…

Q: Suppose exchange rate of Japanese yen in US $ is $.010, exchange rate of euro in US $ is $1.34, and…

A: When there are miss match in exchange rates, there is opportunity for triangular arbitrage profit.…

Q: Calculate the relative bid-ask spread for the following exchange rates. How much money you will lose…

A: Currency is the medium of a country through which goods and services are exchanged or traded within…

Q: Assume the following information: 180-day U.S. interest rate 8% 180-day British interest…

A: Here, US Company exports goods to Britain. In 180 days US company will receive 400,000 pounds from…

Q: Assume that Hampshire Co. has net payables of 200,000 Mexican pesos in 180 days. The Mexican…

A: Money market hedge is using money market to hedge the risk from foreign currency fluctuations

Q: You are a Canadian exporter expecting a payment of USD 1M in three months. You want to hedge your…

A: As the Canadian exporters have speculated that the exchange rate might go up in the future,

Q: A Japanese exporter has a €1,000,000 receivable due in one year. To hedge the position, you will buy…

A: A put option is an instrument which provides its holder an option to sell an underlying asset on a…

Q: Suppose that your company will be receiving 30 million euros six months from now and the euro is…

A: Forward Contract: In a forward contract, two parties agree on a future date and price for the…

Q: Busco has a foreign-currency denominated payable, it can hedge by buying the foreign currency…

A: The put option: The currency put option gives the buyer a right but not the obligation to sell the…

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: a) Assume the following information:       180‑day U.S. interest rate = 8%       180‑day British…

A: Forward hedging is used to protect from future price movement in the securities. It creates off…

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

A: The spot rate is the rate at which a bond or other financial instrument trades on an immediate…

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: If the spot price of the euro is $1.10 per euro and the 30-day forward rate is $1.00 per euro, and…

A: Current Spot Price = $1.10 per Euro Forward Rate = $1.00 per euro  and the Spot price after 30 days…

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: Suppose that the current spot exchange rate is €1.50/₤ and the one-year forward exchange rate is…

A: Arbitrage is the process of making a profit through the purchase and sale of currencies in two or…

Q: Airbus has a foreign-currency denominated payable, it can hedge by buying the foreign currency…

A: Here, Spot Rate is $1.40/£ Three month forward rate is $1.36/£ Three month market interest rate of…

Q: Assume you have $1,000 to invest in a triangular arbitrage transaction, what is your best course of…

A: Note: It is a situation where multiple questions have been asked, so we are allowed to solve the…

Q: Suppose that 1 Danish krone could be purchased in the foreignexchange market today for $0.16. If the…

A: Given, 1 Danish Krone = $ 0.16 Appreciation in Krone against dollar = 4%

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: investor has $2m to invest and has the option of placing it in a us bank account paying 2% annually,…

A:

Q: Suppose a German importer owes an Australian exporting company 150,000 AUD, due in three months.…

A: Exercise rate is the rate at which the currency will be exchanged for other currency in derivatives…

Q: Data from The Economist BigMac index from January 2022 shows that the local price of a Big Mac in…

A: According to purchase power parity the exchange rate and purchase power should be related and this…

Q: Suppose you are a U.S. investor who is planning to invest $785,000 in Mexico. Your Mexican…

A: Beginning value of investment in $ = $ 785,000 Value of investment in Mexico Pesos = $785,000*12.20…

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)…

Instruments of Foreign Exchange Market

Foreign exchange is a worldwide market in which one nation’s currency is converted into another nation’s currency. In further terms, exchanging of nations currency with foreign currencies. Foreign exchange happens at a specified rate which is termed the foreign exchange rate. The exchange rates are not constant continuously changing as they are derived by market forces of supply and demand. Widely used foreign currencies are the United States- dollar, Euro, Japanese Yen, British pound, and Australian dollar. US- dollar is the most denominated foreign currency. The Euro to US dollar is a widely used currency pair in the forex market as these two currencies represent the world’s enormous economy. Forex trade is simple as exchanging currencies at the bank. The main players of forex markets are the central banks, financial institutions, intermediaries, investments banks, and other banks. Central Bank is the supreme player who decides the currency value of their own nation on the forex market. Mostly foreign exchange-traded at FX market (forex market) when tourists’ visits a foreign country, import, and export happens between two countries.