You are holding $20 million in stocks in 20 large companies. You predict that the Dollar is likely to fall over the next 6 months because of the monetary policy statements of the Federal bank. You need a currency strategy that will be beneficial if your prediction is correct but will not lead to large losses if you are incorrect. Discuss the merits of using either an option or a futures contract to achieve your aims.
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You are holding $20 million in stocks in 20 large companies. You predict that the Dollar is likely to fall over the next 6 months because of the
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- Nurul Jannah is a Financial Risk Manager in a large offshore bank in Labuan. She intends to buy additional stocks valued at RM15 million, however, she expects to receive the fund 3 months from today. What is the risk? Select one: a. Three months later the price of the stocks might move SIDE-WAY b. Sir, this question is difficult to understand c. Three months later the price of the stocks might INCREASE to RM20 million d. Three months later the price of the stocks might DECREASE to RM10 million e. Three months later the price of the stocks might move SIDE-WAY to RM15 million Question 2 Nurul Jannah is a Financial Risk Manager in a large offshore bank in Labuan. She intends to buy additional stocks valued at RM15 million, however, she expects to receive the fund 3 months from today. What must she do to manage possible risk of losses? Select one: i. do nothing ii. Sir, what is the correct answer? iii. buy futures contract iv. Sell futures contract1. Alice is a Financial Risk Manager in a large offshore bank in Kuala Lumpur. She intends to buy additional stocks valued at RM15 million, however, she expects to receive the fund 3 months from today. What is the risk? Select one: A. Three months later the price of the stocks might move SIDE-WAY B. Three months later the price of the stocks might DECREASE to RM10 million C. Three months later the price of the stocks might INCREASE to RM20 million D. Three months later the price of the stocks might move SIDE-WAY to RM15 millionABC Co. has a large amount of variable rate financing due in one year. The management is concerned about the possibility of increases in short-term rates. Which would be an effective way of hedging this risk?a. Buy Treasury notes in the futures market.b. Sell Treasury notes in the futures market.c. Buy an option to purchase Treasury bonds.d. Sell an option to purchase Treasury bonds
- Suppose an investor buys 300 stocks for 3 months, the stock price is 10 yuan, and the annual interest rate for 3 months is fixed at 5%. How can I use forward contracts to avoid risks? What is the execution price? Please analyze if the stock price rises to 15 yuan or falls to 8 yuan after 3 months of hedging, what are the losses of this investor?A business plans to borrow approximately $40 million in short-term funding through the issue of commercial paper in three months’ time. The business does not have a view on what is likely to happen to interest rates over the next three months, but it would be very satisfied if it could obtain its funding at the current yield. Using the following data, show how 90-day bank-accepted bills futures contracts can be used to hedge the interest rate risk to which the business is exposed. Show the calculation and timing of all transactions and cash flows (ignore transaction costs and marginrequirements). Today’s data: current commercial paper yields 6.00 per cent perannum 90-day bank-accepted bills futures contract 93.75. Data in threemonths: commercial paper yields 7.00 per cent perannum 90-day bank-accepted bills futures contract93.25.The Bank of England’s Monetary Policy Committee raised interest rates to 3.5 per cent on December 15, 2022 while governor Bailey declaring that “inflation has reached its peak”. What was the immediate impact of this action on financial markets? You have been given £10 million on December 16 to build an optimal portfolio in current market conditions. What would you be investing on, how much on each financial instrument and why? Explain your strategy in detail. Direct and indirect investment are all allowed. No cryptocurrency.
- Suppose an investor sells 100 stocks by short selling for 6 months, the stock price is 30 yuan, and the annual interest rate of 6 months is fixed at 3%. How can I use forward contracts to avoid risks? What is the execution price? Please analyze if the stock price rises to 35 yuan or falls to 25 yuan after 6 months of hedging, what are the losses of this investor?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) $1.7776You are an assistant analyst at a financial consulting company. You havebeen asked to prepare a report for your manager who is advising a newclient on using interest rate derivatives to hedge against interest ratemovements.The client is hoping to increase production capacity by 50% in the next twoto three years due to increasing demand for its products. The client will needto obtain finance to fund the expansion.The yield curve is currently upward sloping; however, the client is worriedthat possible Federal Reserve actions to reduce inflation may result in adownturn in the economy. As the client already has floating interest-baseddebt, it is enquiring about hedging potential interest rate risk using swaps.You are required to write a short report that addresses the followingconcerns so that your manager can present it to the client:a) In what ways could the client use swaps to reduce exposure tointerest rate movements on its cost of debt? Include an explanationof any disadvantages of…
- The total market value of the equity of Okefenokee Condos is $8 million, and the total value of its debt is $2 million. The treasurer estimates that the beta of the stock currently is 0.6 and that the expected risk premium on the market is 10%. The Treasury bill rate is 4%, and investors believe that Okefenokee's debt is essentially free of default risk. a. What is the required rate of return on Okefenokee stock? (Do not round intermediate calculations. Enter your answer as a whole percent.) b. Estimate the WACC assuming a tax rate of 21%. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) c. Estimate the discount rate for an expansion of the company’s present business. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) d. Suppose the company wants to diversify into the manufacture of rose-colored glasses. The beta of optical manufacturers with no debt outstanding is .8. What is the…The total market value of the equity of Okefenokee Condos is $8 million, and the total value of its debt is $2 million. The treasurer estimates that the beta of the stock currently is 0.6 and that the expected risk premium on the market is 10%. The Treasury bill rate is 4%, and investors believe that Okefenokee's debt is essentially free of default risk. a. What is the required rate of return on Okefenokee stock? (Do not round intermediate calculations. Enter your answer as a whole percent.) b. Estimate the WACC assuming a tax rate of 21%. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) c. Estimate the discount rate for an expansion of the company’s present business. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) d. Suppose the company wants to diversify into the manufacture of rose-colored glasses. The beta of optical manufacturers with no debt outstanding is .8. What is the…Suppose money invested in a hedge fund earns 1% per trading day. There are 250 trading days per year. With an initial investment of $100, what will be your annual return assuming the manager puts all of your daily earnings into a zero-interest-bearing checking account and pays you everything earned at the end of the year? *Make sure to input all currency answers without any currency symbols or commas, and use two decimal places of precision.