International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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Suppose your company imports computer motherboards from Singapore. The exchange rate is $1.4878 per Singapore dollar. You have just placed an order for 41107 motherboards at a cost to you of S147 Singapore dollars each. You will pay for the shipment when it arrives in 90 days. You can sell the motherboards for $118 each. What is the break-even exchange rate?
NOTE: Enter the PERCENTAGE number rounding to two decimals.
Suppose your company imports computer motherboards from Singapore. The exchange rate is $1.4353 per Singapore dollar. You have just placed an order for 38,260 motherboards at a cost to you of S148 Singapore dollars each. You will pay for the shipment when it arrives in 90 days. You can sell the motherboards for $118 each. What is the break-even exchange rate?
IF 2c
Your Canadian company processes raw sugar for sale in the United States, and thefirm has just received a container of raw material from the UK. You have an invoicethat asks you to pay £20,000 in 30 days. The current exchange rate is $1.75/£.
c. If you could lock into a forward rate today of $1.85/£ for delivery in 30 days, whatshould you do?
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- Boisjoly Watch Imports has agreed to purchase 15,000 Swiss watches for 1 million francs at today’s spot rate. The firm’s financial manager, James Desreumaux, has noted the following current spot and forward rates: On the same day, Desreumaux agrees to purchase 15,000 more watches in 3 months at the same price of 1 million Swiss francs. What is the cost of the watches in U.S. dollars, if purchased at today’s spot rate? What is the cost in dollars of the second 15,000 batch if payment is made in 90 days and the spot rate at that time equals today’s 90-day forward rate? If the exchange rate for is 0.50 Swiss francs per dollar in 90 days, how much will Desreumaux have to pay (in dollars) for the watches?arrow_forwardAn American firm has just sold merchandise to a British customer for £100,000, with payment in British pounds 3 months from now. The US company has purchased from its bank a 3-month put option on £100,000 at a strike price of $1.6660 per pound and a premium cost of $0.01 per pound. On the day the option matures, the spot exchange rate is $1.7100 per pound. Should the US company exercise the option at that time or sell British pounds in the spot market?arrow_forwardA UK importer contracts to pay 18 million Yen for raw material from a supplier in Japan on one month's credit. The importer arranges with his bank to cover the transaction in sterling on the forward exchange market. The following rates are quoted to him (in Yen/£): Spot rate 247.45 - 247.75 1 month forward 248.00 – 248.80 What will be the cost of the shipment in sterling?arrow_forward
- Suppose DeGraw Corporation, a U.S. exporter, sold a solar heating station to a Japanese customer at a price of 143.5 million yen, when the exchange rate was 140 yen per dollar. In order to close the sale, DeGraw agreed to make the bill payable in yen, thus agreeing to take some exchange rate risk for the transaction. The terms were net 6 months. If the yen fell against the dollar such that one dollar would buy 154.4 yen when the invoice was paid, what dollar amount would DeGraw actually receive after it exchanged yen for U.S. dollars?arrow_forwardThe Wall Street Journal reported the following spot and forward rates for the Swiss franc ($/SF): Spot $0.820230-day forward $0.824490-day forward $0.8295180-day forward $0.8343Was the Swiss franc selling at a discount or premium in the forward market? What was the 30-day forward premium (or discount)? What was the 90-day forward premium (or discount)? Suppose you executed a 90-day forward contract to exchange 100,000 Swiss francs into U.S. dollars. How many dollars would you get 90 days hence? Assume a Swiss bank entered into a 180-day forward contract with Bankers Trust to buy $100,000. How many francs will the Swiss bank deliver in six months to get the U.S. dollars?arrow_forwardTorres Corporation (a U.S.-based company) expects to order goods from a foreign supplier at a price of 100,000 pounds, with delivery and payment to be made on September 20. On July 20, Torres purchased a two-month call option on 100,000 pounds and designated this option as a cash flow hedge of a forecasted foreign currency transaction. The option has a strike price of $1.25 per pound and costs $600. The spot rate for pounds is $1.25 on June 20 and $1.30 on September 20. What amount will Torres Corporation report as an option expense in net income for the quarter ended September 30?a. $300b. $600c. $2,000d. $5,000arrow_forward
- Torres Corporation (a U.S.-based company) expects to order goods from a foreign supplier at a price of 100,000 pounds, with delivery and payment to be made on September 20. On July 20, Torres purchased a two-month call option on 100,000 pounds and designated this option as a cash flow hedge of a forecasted foreign currency transaction. The option has a strike price of $1.25 per pound and costs $600. The spot rate for pounds is $1.25 on June 20 and $1.30 on September 20. What amount will Torres Corporation report as an option expense in net income for the quarter ended September 30? Choose the correct.a. $300b. $600c. $2,000d. $5,000arrow_forwardWeyerhauser is a US based forest products firm In June Weyerhauser delivers a shipment of raw lumber to Japan The y55,000,000 receivables is due 180 days The firm’s foreign exchange advisors believe the yen will be at about y115/$ then, Current spot rate is y110/$ Weyerhauser has received 180 day forward quote of y108/$ If the company does nothing and the exchange rate goes to y115 as expected How much will the firm receive in dollars in 180 days? Is this cash flow risky or known with certainly today?arrow_forwardou are the managing Director of Sunkwa limited a food processing company based in Atlanta in the United States of America. You are planning to visit Geneva, Switzerland in three months’ time to attend an international business conference. You expect to incur the total cost of SF 5,000 for lodging, meals and transportation during your stay. As of today, the spot exchange rate is $0.60/SF and the three-month forward rate is $0.63/SF. You can buy the three-month call option on SF with the exercise rate of $0.64/SF for the premium of $0.05 per SF. Assume that your expected future spot exchange rate is the same as the forward rate. The three-month interest rate is 6 percent per annum in the United States and 4 percent per annum in Switzerland.REQUIRED;(i) Calculate your expected dollar cost of buying SF5, 000 if you choose to hedge via call option on SF. (ii) calculate the future dollar cost of meeting this SF obligation if you decide to hedge using a forward contract. (iii) at what future…arrow_forward
- Your foreign exchange trader in the United States has quoted the following rates for the Swiss Francs spot, 1-month, 3-month, and 6 month: $0.5965/72 50/61 127/143 242/267 a. If/you wished to buy 1,000,000 3-month Swiss Francs, how much would you pay in dollars? b. If you wanted to buy 1,000,000 6-month dollars, how much would you pay in Swiss Francs? .C. In New York, three month treasury bills yield 11% per annum, Using ask quotes only for simplicity, calculate the yields on Swiss three-month bills.arrow_forwardYou are the managing Director of Sunkwa limited a food processing company based in Atlanta in the United States of America. You are planning to visit Geneva, Switzerland in three months’ time to attend an international business conference. You expect to incur the total cost of SF 5,000 for lodging, meals and transportation during your stay. As of today, the spot exchange rate is $0.60/SF and the three-month forward rate is $0.63/SF. You can buy the three-month call option on SF with the exercise rate of $0.64/SF for the premium of $0.05 per SF. Assume that your expected future spot exchange rate is the same as the forward rate. The three-month interest rate is 6 percent per annum in the United States and 4 percent per annum in Switzerland. 1. calculate the future dollar cost of meeting this SF obligation if you decide to hedge using a forward contract. 2. at what future spot exchange rate will you be…arrow_forwardThe following exchange rates are available to you. (You can buy or sell at the stated rates.) Mt Fuji Bank ¥120.00/A$ Mt Rushmore Bank SF1.6000/A$ Mt Blanc Bank ¥80.00/SF Assume that you have SF10, 000,000. Can you make a profit via triangular arbitrage? If so, show the steps that you will follow and calculate the amount of profit in Swiss francs.arrow_forward
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