Annual performance of firm short-term investment portfolio

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Reference no: EM132019283

You recently sold some goods to an importer in Switzerland and, during the negotiations, you agreed to invoice the goods in francs, knowing that you will need to convert the francs to dollars upon receipt. The current exchange rate is $.60 per franc, and the invoice will be for 250,000 francs. Payment is due in 60 days. You decide to hedge your exposure using futures contracts.

a) How many futures contracts will you need?

b) Will you create a buy hedge or a sell hedge?

c) What will your spot market position be if the spot exchange rate is $.70 in 60 days?

2. A treasury manager is assessing the annual performance of the firm’s short-term investment portfolio. The beginning value of the portfolio was $5,200,000. At year-end, the portfolio was valued at $5,350,000. No investments were purchased over the year as revenues and cash flows dropped, which made it difficult to accumulate additional cash holdings.

a) What is the annual rate of return on the short-term investment portfolio?

b) What would the annual rate of return be if the ending value equaled $5,100,000?

Reference no: EM132019283

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