International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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Shandra 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 April 20. On February 20, when the spot rate is $1.36 per pound, Shandra purchases a two-month call option on 100,000 pounds and designates this option as a cash flow hedge of a forecasted foreign currency transaction. The time value of the option is excluded in assessing hedge effectiveness; the change in time value is recognized in net income over the life of the option. The option has a strike price of $1.36 per pound and costs $1,000. The goods are received and paid for on April 20. Shandra sells the imported goods in the local market by May 31. The spot rate for pounds is $1.41 on April 20. What amount will Shandra Corporation report as foreign exchange gain or loss in net income for the quarter ended June 30?
$5,000.
$0.
$1,000.
$2,000.
HSL Inc., a U.S.-based MNC, imports goods from Canada, and HSL Inc. records its payables in Canadian dollars. If the Canadian dollar will appreciate in the near future, you would _______. I. purchase Canadian dollars forward II. purchase Canadian dollar futures contracts III. purchase Canadian dollar put options IV. purchase Canadian dollar call options
A.
III, IV
B.
II, III
C.
I, II, IV
D.
I, II
Speculating with Currency Call Options. ABC Inc., purchased 75,000 units call option on British pounds for $.021 per unit. The strike price was $ 0.78 and the spot rate at the time the option was exercised was $0.86. Assume there are 25,000 units per British pound option. What was ABC's net profit per option?
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Speculating with Currency Call Options. ABC Inc., purchased 75,000 units call option on British pounds for $.021 per unit. The strike price was $ 0.78 and the spot rate at the time the option was exercised was $0.76. Assume there are 25,000 units per British pound option. What was ABC's net profit per unit option?arrow_forwardSpeculating with Currency Call Options. ABC Inc., purchased 75,000 units call option on British pounds for $.021 per unit. The strike price was $ 0.78 and the spot rate at the time the option was exercised was $0.98. Assume there are 25,000 units per British pound option. What was ABC's net profit option?arrow_forwardMasons intends to purchase goods valued at £2.09 million, with payment due in one year. To mitigate the exchange rate risk associated with the £2.09 million payment, Masons is considering the forward market hedging strategy. Using the data provided in Table 1, determine the cost in Chinese yuan (CNY) when employing the forward market hedging strategy. (Please input the value as a whole number, excluding any signs or symbols). TABLE 1 For Chinese yuan (CNY) Spot rate £0.3755/CNY One-year forward rate £0.5381/CNY One-year CNY deposit and borrowing rate 8.48% One-year call options Exercise price = £0.52 Premium = £0.03 One-year put options Exercise price = £0.58 Premium = £0.06 For British Pound (£) Spot rate CNY3.5909/£ One-year forward rate CNY1.918/£ One-year £ deposit and borrowing rate 4.71% One-year call options Exercise price = CNY1.64 Premium = CNY0.17…arrow_forward
- Speculating with Currency Call Options. ABC Inc., purchased 75,000 units call option on British pounds for $.021 per unit. The strike price was $ 0.78 and the spot rate at the time the option was exercised was $0.89. Assume there are 25,000 units per British pound option.arrow_forwardAssume the following information: Quoted Price Value of Canadian dollar in U.S. dollars $.90 Value of New Zealand dollar in U.S. dollars $.30 Value of Canadian dollar in New Zealand dollars NZ$3.02 Given this information, is triangular arbitrage possible? If so, explain the steps that would reflect triangular arbitrage, and compute the profit from this strategy if you had $1,000,000 to use. What market forces would occur to eliminate any further possibilities of triangula r arbitrage?arrow_forward
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