Reference no: EM132953026
1.) A New Zealand Company Fonterra Cooperative also owes another USA exporter Alto Dairy Inc USD150,000, due in three months. The following information is available:
Current spot exchange rate (NZD/USD) 1.3819 - 1.3869
Expected spot exchange rate (NZD/USD) 1.3919 - 1.3969
Premium on USD 3 months Call option 1%
Premium on USD 3 months Put option 1%
Exercise exchange rate 1.3944
Time to expiry 3 months
i) Calculate Fonterra Cooperative expected value of NZD receivables under an option hedge.
ii) Calculate Fonterra Cooperative expected value of NZD receivables if no option hedge is taken.
2.) You work as a trader for ANZ Bank, you see the following price from two different bank:
One-year forward rate (AUD/GBP) 2.6450 - 2.6550
Spot rate (AUD/GBP) 2.7450 - 2.7550
One-year AUD interest rate 7.75% - 8.25%
One-year GBP interest rate 3.75% - 4.25%
The interest rate is quoted on a 360-day year. You can borrow GBP1000 or AUD1000. Can you do a cover interest arbitrage (CIA)?
[Show both profit and losses]
3.) A trader holds a call option and put option on the New Zealand dollar. The Call gives the trader the right to 1 million NZD at an exercise exchange rate of 0.70(USD/NZD). The put gives the trader the right to 1 million NZD at an exercise exchange rate of 0.70 (USD/NZD). Determine whether or not the trader will exercise the call option and put option and then calculate the gross pay-off at the following spot exchange rates: (a) 0.75 and (b) 0.65.
4.) Two counterparties, A and B, agreed on a five-year interest rate swap, whereby A received annual payments based on a floating interest rate and B received annual payments based on a fixed interest rate. The notional principal is AUD100,000 and the fixed rate is 6 per cent.
The floating interest rate assumed the following values on the payment dates:
Payment date Interest rate
2016 8.25
2017 9.75
2018 5.50
2019 4.75
2020 6.00
Calculate the amounts received by A and B on each payment date.
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Calculate the amounts received by a and b
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