International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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Students have asked these similar questions
You use today's spot rate of the Brazilian real to forecast the spot rate of the real for one month ahead. Today's spot rate is $0.4524. Assume that you
obtain the end-of-month spot exchange rates of the Brazilian real during the end of each of the last 6 months.
End of
Month
1
2
3
4
5
6
%
$
Value of
Brazilian real
Use the value-at-risk method to determine the maximum percentage loss of the Brazilian real over the next month based on a 95 percent confidence
level. Do not round intermediate calculations. Round your answer to two decimal places.
$0.4231
0.4179
0.4192
0.4542
0.4649
0.4524
Forecast the exchange rate that would exist under these conditions. Do not round intermediate calculations. Round your answer to four decimal places.
Question 2
In 6-month from today, a U.S. based company will receive 2,000,000 Australian dollars (AUD) and the
company wants to hedge the exchange rate risk. The expected AUD spot rate in 6-month will either
appreciate by 5% (p.a) with 40% probability or depreciate by 10% (p.a.) with 60% probability. All rates
are continuous compounding (please round your answers to 4 decimals in the exchange rate calculations).
As the financial manager of the company, you look at Bloomberg and collect the following information:
• U.S. interest rate:
.
.
4% p.a.
5% p.a.
1 AUD=0.63 USD
Spot rate:
Call option premium 0.03 USD, with exercise exchange rate 1 AUD-0.65 USD and 6-month
maturity
Put option premium 0.02 USD, with exercise exchange rate 1 AUD-0.64 USD and 6-month
maturity
Australian interest rate:
1) Calculate the 6-month forward exchange rate, describe how a forward agreement can be used to
hedge the receivable money, and calculate the resulting amount of USD in 6 months.
Suppose the spot rate for the Canadian dollar is CAD1.034 = USD1, the 3-month forward rate is CAD1.036 = USD1, and the 1-year forward rate is CADS1.039. = USD1. If no other information is available, what will be your guess about the spot rate in 1 year?
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