Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
1. In mid-December, a bank Treasurer projects that loan demand will require a $10 million borrowing on March 15. The contractual loan rate is 125 basis points over LIBOR. As of December 15, the 3-month LIBOR rate was 8.375 percent and the March Eurodollar futures rate was 11.85 percent (price 88.15). The Treasurer is concerned that interest rates may rise between December and March. The projection for the future is that on March 15, the 3-month LIBOR rate would be 11.125 percent, and the Eurodollar futures rate would be 14.75 percent (price 85.25). a. State what kind of hedge would he take and why. b. Compute the firm's actual interest cost in dollars. c. Compute gain or loss in the futures market after describing the transactions. d. Calculate effective annualized interest cost. 2. On August 2, a securities dealer, Ms. Cindy Zaicko, responsible for a $10 million bond portfolio is concerned that interest rates are expected to be highly volatile over the next 3 months. The fund manager decides to use Treasury bond futures to hedge the value of the bond portfolio. The current price on a December T-bond futures is 91-22. During the period August 2 to November 2, interest rates climbed rapidly causing the bond portfolio value to drop as prices of T-Bonds declined from 100-00 to 95-11. On November 2, the December T-Bond futures contract was priced at 88-26. The portfolio was sold at its market value on Nov. 2. The minimum contract size for the T-Bond futures contract is $100,000 and the minimum price change is $15.625 per tick of 1/64 (1/2 of 1/32). a. State what kind of hedge could Ms. Zaicko take and why. b. Compute the opportunity cost of waiting to sell the portfolio. Describe all transactions clearly. c. Compute gain or loss in the futures market after describing the transactions. d. Calculate the effective revenue with the hedge. Describe all transactions clearly. 3. Suppose that on May 23, 2011, a U.S. firm agrees to buy 1,000 motorcycles from the Japanese firm, Kawasaki, on November 20 at a price of ¥202,350 each. The firm fears that the U.S. $ will depreciate against the yen before the sale date making the yen it must buy more expensive. It decides to take a long hedge in Japanese yen futures for December delivery. Assume that the U.S. firm needs 16 futures contracts to hedge its exposure completely. The minimum contract size for the Japanese yen futures contract is ¥12,500,000 and the minimum price change is $12.50 per tick of 0.000001. Yen prices were as follows: May 23 November 20 Spot rate $0.0128118/¥ $0.0130422/¥ December Futures $0.0129190/¥ $0.0131241/¥ a. State what kind of hedge could be taken and why. b. Calculate the opportunity cost of waiting to pay for the motorcycles in November. Describe all transactions clearly. c. Compute the gain or loss in the futures hedge after describing in detail all transactions. d. Calculate the actual cost of purchasing the motorcycles with the hedge.
Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..
This report is specific for a core understanding for Financial Accounting and its relevant factors.
Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.
Briefly describe the major differences between a sole proprietorship and a corporation
Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month
What are the implied interest rates in Europe and the U.S.?
State pricing theory and no-arbitrage pricing theory
Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.
The Effect of Financial Leverage and working capital management
Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.
Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.
Time Value of Money project
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!
whatsapp: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd