User Account

All Pages

Determine the amount they pay in six months

Assignment Help Finance Basics
Reference no: EM133005221

a. Minnesota Manufacturing Inc. has just signed a contract to purchase materials from a manufacturer in Belgium in the amount €2,500,000. Since this is considered as a large amount in contract for the firm and the purchase is in a different currency (in Euros), the purchase was made in January with payment due six months later in July. Minnesota Manufacturing Inc is considering several hedging alternatives to reduce the exchange rate risk arising from the sale. The firm forecasted that 6-month spot rate will be $0.90/€, with the highest acceptable purchase of $2,300,000 or $.92/€. Below are additional information to assist Minnesota Manufacturing Inc to make a decision.

Spot exchange rate $0.8924/€

Six month forward rate $0.8750/€

Euro 6-month borrowing rate 9% per annum

Euro 6-month lending rate 7% per annum

U.S. 6-month borrowing rate 4%

U.S. 6-month lending rate 3.5%

Cost of Capital 11%

July call option for €625,000 strike price $0.90, premium price is 1.5%

i. If the firm chooses not to hedge their euro payable, determine the amount they pay in six months?

ii. If the firm chooses to hedge its transaction exposure in the forward market. Determine the required amount in dollars to pay off the account payables in 6 months. Explain the steps that the firm will take.

iii. If the firm locks in the forward hedge at $.8750/€, and the spot rate when the transaction was recorded on the books was $.8924/€, determine what will happen to the accounting transaction for Minnesota Manufacturing Inc.?

b. Sayonara Inc. in Japan is exporting goods to Idaho, U.S.A. They predict the time from acceptance to maturity on a ¥50,000,000 banker's acceptance is 90 days. Bank's acceptance commission in Idaho is 1.50 percent. The market rate for 90-day B/As is

6.50 percent (assume at 360 day). Determine the amount Sayonara Inc. will receive if the firm holds the B/A until maturity and also the amount the exporter will receive if the firm discounts the B/A with the importer's bank.

c. Countertrade comes in various types. Discuss the counter trades that does not involve the use of money.

Reference no: EM133005221

Questions Cloud

What is the risk profile of each of these assets : You have $5,000 to invest for the next year and are considering four alternatives:
Calculate the economic order quantity : The cost per box is US $ 3 and a cost of US $ 20 is incurred each time a purchase order is placed. Calculate the Economic order quantity
Prepare the summary journal entry : Prepare the summary journal entry (or entries) to record the shipment of the six mixers (four from the 2020 sales and two from the 2021 sales)
What is the probability that the stock returns are greater : The standard deviation of the annual return was 19%. What is the probability that the stock returns are greater than 17%
Determine the amount they pay in six months : i. If the firm chooses not to hedge their euro payable, determine the amount they pay in six months?
How much money does he need to have : If his retirement annuity earns 3.8% compounded quarterly, how much money does he need to have in his RRSP when he retires
What was cooper adjusted basis for like-kind property : To even up the exchange, Dane also gave Cooper $30,000 in cash. What was Cooper's adjusted basis for like-kind property received
What the adjusted balance of the home office : The home office allocated P5,000 general expenses to the branch, What the adjusted balance of the home office and branch account
Determine dollar amount of cost of goods manufactured : During FY 2020 Annapolis Manufacturing had total manufacturing costs are $500,000. Determine dollar amount of Cost of Goods Manufactured

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

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 ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

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

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

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.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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