Calculate the forward price the company could use

Assignment Help Financial Accounting
Reference no: EM132969793

Question - A case of an account receivable: Consider a U.S.-based company that exports goods to Switzerland. The U.S. Company expects to receive payment on a shipment of goods in three months. Because the payment will be in Swiss francs, the U.S. Company wants to hedge against the volatility in the foreign exchange rate. The U.S. risk-free rate is 5 percent, the Swiss risk-free rate is 2 percent and the US company's cost of capital is 11%. Assume that interest rates are expected to remain fixed over the next six months. The current spot rate is USD/0.5974CHF.

1. Explain whether a future appreciation in the swiss frank will harm or benefit the US company?

2. Calculate the forward price the company could use to hedge its position.

3. It is now 90 days since the U.S. Company entered into the forward contract. The spot rate is USD/0.5500CHF and the company is about to receive the payment. Interest rates are the same as before. Explain whether the company has made a mistake by entering into the forward contract or not.

Reference no: EM132969793

Questions Cloud

What is the opportunity cost of using the machine : A firm has a general-purpose machine, If the tax rate is 30 per cent, what is the opportunity cost of using this machine in a new project?
Compute mini current income tax expense : The U.S. Federal corporate income tax rate is 21%, and Mini earns an after-tax rate of return on capital of 8%. Compute Mini's current income tax expense
What is the equivalent annual cost of the machine : The machine will be replaced at the end of its life. What is the equivalent annual cost of this machine if the required rate of return is 15 per cent
How can the supply curve of exports and the demand curve : How can the supply curve of exports and the demand curve of imports of a commodity be derived from the total demand and supply curves of a commodity
Calculate the forward price the company could use : The U.S. Company expects to receive payment on a shipment of goods in three months. Calculate the forward price the company could use
Calculate the accounts receivable turnover ratio : Calculate the accounts receivable turnover ratio and convert that ratio into days. Discuss what each ratio tells you in the context of BP & Southwest Airlines.
How much will have saved to buy the? guitar : If he leaves the accumulated money in the savings account for another four years at 5.62?% compounded? quarterly, how much will he have saved to buy the? guitar
Calculate the net present value for the proposed project : Using the Weighted Average Cost as the investment hurdle rate calculate the net present value for the proposed project
How are the ebit equilibrium and eps impacted : Suppose Carly decides to have a coupon rate of 12% instead. How are the EBIT equilibrium and EPS impacted? Calculate the EBIT equilibrium

Reviews

Write a Review

Financial Accounting Questions & Answers

  Discuss unadjusted trial balance office equipment is equal

unadjusted trial balance office equipment is equal to 6300 and art equipment is 1800 and it all placed in service at november

  Declared dividends during the current year

The current year’s cash dividend on the 6 percent, $100 par value preferred stock. 100,000 shares were outstanding at the time of the declaration. A cash dividend of $0.75 per share on the $10 par value common stock. 750,000 shares were outstanding a..

  Estimate the unlevered and levered beta for hp

What is the assumption you have made about the debt beta and hence riskiness of the debt. Estimate the unlevered and levered beta for HP.

  Explain the motivations and techniques available

Explain the motivations and techniques available for Creative Accounting: otivation for the use of creative accounting techniques in the conditions

  Journalize blue star co entry for the sale

Journalize Blue Star Co.'s entry for the sale, purchase, and payment of amount due, using the net method. If an amount box does not require an entry

  Determine interest earned during the first five years is

Determine Interest earned during the first five years is. A person deposited $2500 into a savings account @ 0.68% compounded quarterly.

  What is best guess as to the rate of return on the stock

What is best guess as to the rate of return on the stock? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)

  How to retrieve financial statements

How to Retrieve Financial Statements. The financial statements of all U.S. publicly traded companies are a matter of public record.

  Prepare a trial balance with the proper heading

Prepare a trial balance with the proper heading (see Exhibit 7) and with the accounts listed in the chart of accounts sequence (see Exhibit 2). Compute the balance of Accounts Payable.

  Market value of equity-what is the value-to-ebita ratio

A firm has $600 market value of equity and $300 market value of debt. The firm also has $100 in nonconsolidated subsidiaries and $50 in excess cash. If the firm’s expected EBITA is $100, what is the value-to-EBITA ratio?

  Which a well-developed secondary market is likely to

Which a well-developed secondary market is likely to? help manage risk exposures of investors. / help with corporate agency problems.

  Calculate the average percentage change

Calculate the average percentage change, in absolute value, before a change of 25 basis points in the market interest rate, that is, in the yield to maturity

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd