Chapter 15, Problem 1CT

The Group CFO of Munitenge Bwino Plc is exploring investment options on the €200,000 the company was recently awarded by the European Court of Justice over wrong assessment issued by the Tax Authority for their wholly owned subsidiary operating in Europe. The CFO is convinced that buying €200,000 at $2.50 per euro in three months’ time is the best option. a)Compute the possible loss at the end of three months if the euro was worth $1.90b) How much would Munitenge Bwino Plc receive from counterparty to this forward contract if the euro dollar exchange rate was $3 at the end of three monthsc) On advice from the company’s investments department, the CFO is considering a short position with a settlement price on a Musaninyonze EUR futures contract is $3.40/EUR. Munitenge Bwino Plc has been asked to deposit $20,000 in the performance bond account. The next three days’ settlement prices are $3.20, $3.30, and $3.05. Calculate the changes in the performance bond account from daily…

The Group CFO of Munitenge Bwino Plc is exploring investment options on the €200,000 the company was recently awarded by the European Court of Justice over wrong assessment issued by the Tax Authority for their wholly owned subsidiary operating in Europe. The CFO is convinced that buying €200,000 at $2.50 per euro in three months’ time is the best option.Required:a) Compute the possible loss at the end of three months if the euro was worth $1.90; b) How much would Munitenge Bwino Plc receive from counterparty to this forward contract if the euro dollar exchange rate was $3 at the end of three months; c) On advice from the company’s investments department, the CFO is considering a short position with a settlement price on a Musaninyonze EUR futures contract is $3.40/EUR. Munitenge Bwino Plc has been asked to deposit $20,000 in the performance bond account. The next three days’ settlement prices are $3.20, $3.30, and $3.05. Calculate the changes in the performance bond account from daily…