Spot

b. Explain two ways to hedge the risk. Answer: You could hedge your risk by buying dollars forward at ¥106.02/$. Alternatively, you could determine the present value of the dollars that you owe and buy that amount of dollars today in the spot market. You could borrow that amount of yen to avoid having to pay today. c. Which of the alternatives in part b is superior? Answer: If you do the forward hedge, you will have to pay ¥106.02/$ [pic]$377,287 = ¥39,999,967

contracts! Suppose that we set the two formulas equal to each other and do some rearrangements using my X/Y approach to stay general and to remind us what we are doing. We can get the following result, solving for the forward rate: Forward rate = Spot rate x (1 + X interest rate) / (1 + Y interest rate) Remember the rule is X over Y. When

how might its stock be affected? How could the firm manage its gold price exposure without the use of financial contracts? Particulars for yr 1992($ million) | | Pretax earnings (Exhibit 2) | 223 | Reductions in earning of gold sold at spot (1280mn oz x (422-345) (Exhibit 12) | (99) | Proforma Pretax Earnings | 124 | Taxes @ 21% (Exhibit 2) | (26) | After Tax Earnings | 98 | Thus in absence of risk management program the American Barrick stock would be more sensitive to gold

of this policy, product prices were revised monthly. The forward price (or sometimes forward rate) is the agreed upon price of an asset in a forward contract. Using the rational pricing assumption, we can express the forward price in terms of the spot price and any dividends etc., so that there is no possibility for arbitrage. By setting a certain price in a certain currency (in this case Brazilian real) a company can avoid problems if there is any case of rising currency rate. The price for a

sole authority to grant or deny the special use permit to allow them to construct a cellular tower on the proposed site. The Board of County Commissioners, sitting as the Zoning Board of Appeals, has the authority to approve the zoning variance. The zoning variance will be presented to the Board in December if the special use permit is approved. Ms. Wallingford-Ingo stated a notion was made in the recommendation section of staff’s review. She stated there is a process that requires a telecommunications

expected to be 4% and 7%, respectively. If the current spot rate on that day was $1 = L2,000, then the expected spot rate for the lira in three years was a) $.0004591 b) $.0011590 c) $.0009892 d) $.0005471 Ans: a Section: Purchasing power parity Level: Medium 4.15 On January 1, 1985, the annual inflation rates in the U.S. and France were expected to be 4% and 6%, respectively. If the current spot rate that day was $.1250, then the expected spot rate in two years was a) $.1299 b) $.1150 c) $

risk than shorter-term securities; a) is based on the assumption that forward rates reflect expected future spot rates; b) implies that 2-period securities will trade at a higher price than one-period securities; a) assumes that financial markets are not liquid; a) is not correctly described by any of the above answers. Over/… 11. Our study of spot and forward interest rates allows us to conclude that a) forward short-term rates are traded in the money market;

Summary AIFS is an American based company that offers travel abroad and exchange study services to both college and high school students. While AIFS’s revenues are denominated in American Dollars (USD), most of their costs are in foreign currencies as Euros (EUR) and British Pounds (GBP). Consequently, foreign exchange hedging has a crucial importance for the company because it provides protection against different types of risk that derive from its activity. In order to reduce risk, the company

adverse. This links to expectations on future spot rates and how GM anticipates the CAD to fluctuate vis-à-vis the USD in the coming months. If GM anticipates future spot rates of CAD/USD to weaken, it would prefer to buy a forward and the reverse holds true as well. After conduction an analysis, it shows that the fluctuations in exchange rate could cause a lot of trouble for GM. Hence, it reverts back to the issue of GM’s expectations of the future spot exchange rate. From this, they can then determine

Dozier Industries Case On January 13, 1986 Dozier Industries, an American based firm, received notice that a bid on a project in the United Kingdom had been accepted. The project was to bring in £1,175,000 in revenue. Therefore, the revenue received for this project will need to be transferred into US dollars. When Dozier issued the bid on December 3, 1985 the project the exchange rate was $1.4820/£. This rate would have provided Dozier with the desired 6% profit on the project. On January