Forward contract to purchase dollars with euros

Assignment Help Financial Management

Reference no: EM131989806

Today, a U.S. importer places an order for machine tools that will arrive in Houston in 60 days, when he must pay 2,000,000 euros to the German exporter. Assume that the price of at-the-money, 60-days, euro calls is $0.04, and the price of 60-days, at-the-money euro puts is $0.05. Please note that the spot rate today is $1.39. All prices are per euro.

1) The U.S. importer is short euros.

A) TRUE

B) FALSE.

2) If he does not hedge payables, he will suffer a loss if the dollar depreciates.

A) TRUE

B) FALSE.

3) The U.S. importer could hedge by buying euro puts.

A) TRUE

B) FALSE.

4) The U.S. importer could hedge by buying euro futures.

A) TRUE

B) FALSE.

5) The U.S. importer could hedge by buying euro calls.

A) TRUE

B) FALSE.

6) The U.S. importer could hedge by entering into a 60-day forward contract to purchase dollars with euros.

A) TRUE

B) FALSE.

7) The U.S. importer could hedge by entering into a 60-day forward contract to purchase euros with dollars.

A) TRUE

B) FALSE.

8) If he hedges with options, he will

A) buy four calls

B) buy six puts

C) buy 16 calls

D) sell six calls

E) buy 16 puts

Reference no: EM131989806

Questions Cloud

Conflicts of interest and increased asymmetric information : Has the development of the Shadow Banking Sector, the breaking of Glass-Steagall, worsened Conflicts of Interest and increased Asymmetric Information?

What is the coupon rate of bonds : The bonds had a percentage return over the past six months (from 6 months ago to today) of 6 percent. What is the coupon rate of the bonds?

What was the firm cash flow to stockholders : What was the firm's cash flow to creditors during 2016? What was the firm’s cash flow to stockholders during 2016?

What is the coupon rate of the bonds : The bonds had a percentage return over the past six months (from 6 months ago to today) of 6 percent. What is the coupon rate of the bonds?

Forward contract to purchase dollars with euros : The U.S. importer could hedge by entering into a 60-day forward contract to purchase dollars with euros.

What was the firm cash flow from assets : What was the firm's cash flow to creditors during 2016? What was the firm’s cash flow from assets during 2016?

Working capital cycle in days of the business : What is the working capital cycle in days of the business?

Describe in detail some of the short term investment vehicle : Describe in detail some of the short term investment vehicles that can be used to manage your cash resources.

How much should the stock price change : How much should the stock price change (in dollars and percentage)?

User Account

All Pages