CORPORATE EXCHANGE RISK MANAGEMENT
Transaction exposure
1. Dow Chemical ha...
Business, 15.04.2020 21:08, lupitaca888
CORPORATE EXCHANGE RISK MANAGEMENT
Transaction exposure
1. Dow Chemical has sold SFr 25 million in chemicals to Ciba-Geigy. Payment is due in 180 days. Spot rate: $0.7957/SFr 180-day forward rate: $0.8095/SFr 180-day U. S. dollar interest rate (annualized): 5% 180-day Swiss franc interest rate (annualized): 2% 180-day call option at $0.80/SFr: 2% premium 180-day put option at $0.80/SFr: 1% premium a. What is the hedged value of Dow’s receivable using the forward market hedge? b. Explain how Dow can use the money market hedge? c. Explain the use of currency options to hedge its receivable?
2. Magnetronics, Inc., a U. S. company, owes its Taiwanese supplier NT$205 million in three months. The company wishes to hedge its NT$ payable. The current spot rate is US$0.03990/NT$, and the three-month forward rate is NT$1 = US$0.04051. Magnetronics can also borrow/lend U. S. dollars at an annualized interest rate of 12% and Taiwanese dollars at an annualized interest rate of 8%.
a. What is the U. S. dollar cost by forward hedge?
b. What is the U. S. dollar cost by money market hedge? Describe the procedure it would use to get this price.
c. If the firm wanted to use option hedge, should it buy a call or put on NT$?
3. In contrast to simple examples in the text, many firms do not hedge their transaction exposures fully. Explain three reasons why they may remain partly or fully unhedged.
4. Sun Microsystems, a US firm, has decided to hedge only when it believes the dollar will strengthen. Otherwise, it will go uncovered. Comment on this policy.
Answers: 2
Other questions on the subject: Business
Business, 22.06.2019 20:30, cahree
Afirm wants to strengthen its financial position. which of the following actions would increase its current ratio? a. reduce the company's days' sales outstanding to the industry average and use the resulting cash savings to purchase plant and equipment. b. use cash to repurchase some of the company's own stock. c. borrow using short-term debt and use the proceeds to repay debt that has a maturity of more than one year. d. issue new stock, then use some of the proceeds to purchase additional inventory and hold the remainder as cash. e. use cash to increase inventory holdings.
Answers: 3
Business, 22.06.2019 23:30, sierravick123owr441
An outside supplier has offered to sell talbot similar wheels for $1.25 per wheel. if the wheels are purchased from the outside supplier, $15,000 of annual fixed overhead could be avoided and the facilities now being used could be rented to another company for $45,000 per year. direct labor is a variable cost. if talbot chooses to buy the wheel from the outside supplier, then annual net operating income would:
Answers: 1
Business, 23.06.2019 08:30, Irdk1
The kamp family has twins, rob and rachel. both rob and rachel graduated from college 2 years ago, and each is now earning $50,000 per year. rachel works in the retail industry, where the mean salary for executives with less than 5 years' experience is $35,000 with a standard deviation of $8,000. rob is an engineer. the mean salary for engineers with less than 5 years' experience is $60,000 with a standard deviation of $5,000.
Answers: 3
Do you know the correct answer?
Questions in other subjects:
Mathematics, 04.06.2020 20:02
