User Account

All Pages

Hedging with forward contracts

Assignment Help Business Management
Reference no: EM132853738

What are your thoughts on the below scenarios and provide an explanation as well Hedging with forward contracts 1

1.Your company will receive 1 million Turkish liras (TKL) in one year. To hedge this exposure with forward contracts you need to

  • Buy TKL forward,
  • Sell USD forward
  • Sell TKL forward.

2.Your company has to pay 1 million Swedish kronor (SEK) in 6 months. To hedge this exposure with forward contracts you need to

  • Buy SEK forward.
  • Buy USD forward
  • Sell SEK forward.

3.A forward contract makes a profit

  • When volatility is high.
  • Often when we sell forward emerging-market currencies.
  • Rarely, because of high transactions costs.
  • Roughly 50 percent of the time.

4.Which statement is false? Hedging with forward contracts:

  • Provides greater transparency on costs and revenues, allowing firms to make better pricing decisions.
  • Eliminates "background risk" allowing managers to make better decisions.
  • Reduces the volatility of profits.
  • Is a source of profits that can make our business more valuable

Hedging with forward contracts 2

1. Your company has a 1 million Euro receivable in one year. You decided to fully hedge with forward contracts.  

The one year forward rate is 1.22 USD/EUR.

How much will you receive in USD in one year?

2. Your company has a 1 million Brazilian real (BRL) payable in one year. You decided to fully hedge with forward contracts.  

The one year forward rate is 6 BRL/USD.

How much will you pay in USD in one year?

3.Your company will receive 1 million South African Rand (ZAR) in 3 months. You decided to fully hedge with forward contracts.  

The 3-month forward rate is 15 ZAR/USD.

How much will you receive in USD in one year?

Hedging with options 1

1.Which statement is false? You should always hedge with options when

  • The competition is unhedged.
  • The exchange rate volatility is high.
  • The transaction is uncertain.

2.Your company will receive 1 million euros in one year. You want to hedge the exchange rate risk. Which option should your company buy?

  • A call in the EUR
  • A put on the USD
  • A put on the EUR

3.Your company will pay 1 million British pounds (GBP) in one year. You want to hedge the exchange rate risk. Which option should your company buy?

  • A call on the GBP.
  • A call on the USD.
  • A put on the GBP.

Reference no: EM132853738

Questions Cloud

Social trends regarding racial prejudice : Why are we uncomfortable in discussing racial issues? What are examples and consequences of racial stereotypes? How do Canadian and American cultures
Benefits of training and return on investment strategies : Benefits of Training and Return on Investment (ROI) Strategies Use at least two resources from the class.
What is the total cash flow in years : You are considering starting a new business with your friend. You have developed a "mood remote control" that will automatically switch TV channels
Create your own confidence interval : Create your own confidence interval (you cannot use 80%, 95%, and 99%) and make sure to show your work. Make sure to list the margin of error
Hedging with forward contracts : What are your thoughts on the below scenarios and provide an explanation as well Hedging with forward contracts 1
Discuss some your own myths and stereotypes of people : Analyze the distribution of survey responses, was there general agreement in responses or wide variation; how would you explain the distribution
Calculate the present value of the differential annuity : The annuity between years 11-14 is received at the beginning of each period. Calculate the present value of the differential annuity.
Analyze the distribution of responses : Analyze the distribution of responses, was there agreement of consistency of responses or wide variation; how would you explain the distribution
Discuss market beta : Discuss what market beta, market equity(ME), book-to-market ratios, operating profitability, investments and momentum are in the Fama-MacBeth cross-sectional re

Reviews

Write a Review

Business Management Questions & Answers

  Benefits of networks for a social work educator

Describe the benefits and disadvantages of such networks for a social work practitioner or educator.

  What change effort have been undertaken at your organization

What change efforts have been undertaken at your organization? Which have worked? Which readings on change make most sense to you? Why?

  Prepare a memo to your boss at jetblue airlines

Why do you think that CI is so hot in today's environment?  -  Prepare a memo to your boss at JetBlue Airlines and outline why the organization needs a CI unit.

  Write a procedure the details the specific dates

Write a procedure the details the specific dates when each tax and super obligation is due to be reconciled and paid. (victoria, australia)

  How useful are budgetary processes

How useful are budgetary processes, such as zero-based budgeting, for human service agencies and compare and contrast cost-benefit analysis and cost-effectiveness analysis

  What do you think about the above statement

The evaluation of information technology and its business value are the subjects of many academic and business discussions. Investments

  Describe a situation in which this might reasonably happen

Explain why TIME_WAIT is a somewhat more serious problem if t server initiates the close than if the client does. Describe a situation in which this might reasonably happen. (150 Word Minimum).

  What were the real interest rates in france and germany

Based on these figures, what were the real interest rates in France and Germany?-  To what would you attribute any discrepancy in real rates between France and Germany?

  Globalization and the freedom of trade

Globalization and the freedom of trade existed before all the boarders and international boundaries were set up and trade regulations put in place.

  Critical analysis and critiquing - article

Discuss your own point of view on how change can be implemented based on your evaluation. Relate your critical analysis to any of the theoretical models

  Sales day for an organization functional areas

What are the implications of a "super" sales day for an organization's functional areas?

  Critically evaluate a small business plan

This assessment is designed to allow students to critically evaluate a small business plan, and make supported recommendations to improve the plan

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