Calculate and compare dollar amount to be received

Reference no: EM133615879

Problem: Based on the economic forecasts, inflation in the United States is expected to be 6.9 percent, while inflation in United Kingdom is expected to be 3.7 percent over the next year. Husky Co. CFO believes that purchasing power parity holds. Spot rate of GBP is 1.2 USD. As a form of hedge, their Bank offered a GBP put option with an exercise price of 1.27 USD and a premium of 0.03 USD. 1. Calculate the GBP spot rate in one year based on these expectations and assumptions. 2. Should Husky Co. purchase the put option based on their estimate? Calculate payoff and profit/loss of the put option. 3. Assume Husky Co. has 500,000 GBP receivables in one year. US interest rate is 4%, while UK interest rate is 3%. Additionally, one year GBP forward rate is 1.25 USD. Calculate and compare dollar amount to be received in one year with money market hedge, forward contract, put option and no hedge.

Reference no: EM133615879

Questions Cloud

Business messages using different sentence structures : we discussed how to write business messages using different sentence structures.

Why growth rate g is deducted from required rate of return : Why the growth rate g is deducted from the required rate of return at denominator rather than multiplying (1+g) to the dividend at numerator in the equation?

What might explain the paucity of successful challenges : What might explain the paucity of successful challenges to predatory pricing during that time? If you disagree with the current framework, explain why

Did the call provision in the debt affect the cost of debt : What corporate cost of capital do you estimate for Southeastern? What is its cost of debt? Did the call provision in the debt affect the cost of debt?

Calculate and compare dollar amount to be received : Calculate and compare dollar amount to be received in one year with money market hedge, forward contract, put option and no hedge.

About importance of observing children strengths : In Early Childhood Education, we talk about the importance of observing the children's strengths, needs, and interests.

Briefly describe the primary time series models : Briefly describe the primary time series models. Discuss application and assumptions for each model.

What is the value of the stock : A stock just paid dividend of $2.05. The dividend is expected to grow at 20.57% for two years and then grow at 4.62% thereafter. What is the value of the stock?

How will you advertise or market an online teaching business : How will you advertise or market an online teaching business and What are the financial specifics for an online teaching business

User Account

All Pages