Solution-How hedge the exposure using currency futures

How hedge the exposure using currency futures

Reference no: EM133004744

Your company sells specialized electronic components to South Africa payable in South African rands (ZAR).The following information is available on the expected $/ZAR exchange rates to prevail at the endof the year. The local prices of the electronic components are affected by the value of ZAR, as shown below.

Qi (Prob) Si Local Price (P'i) Pi (price in dollars)
0.20 $0.0550ZAR 30,000.00 $1,650.00
0.30 $0.0600ZAR 32,500.00 $1,950.00
0.30 $0.0650ZAR 35,000.00 $2,275.00
0.20 $0.0700ZAR 37,500.00 $2,625.00

a. What is relationship, as measured by β, between $/ZAR rates and component prices in US dollars.

b. Explain how you can hedge the above exposure using currency futures. You will be receiving the money for your sales overseas. The one-year forward rate is $0.06/ZAR. What is the maximum you will receive per component given the four likely scenarios. Show all work.

Reference no: EM133004744

Questions Cloud

Make a traditional income statement for cherokee inc : Prepare a traditional income statement. Cherokee Inc. is a merchandiser that provided the following information: Number of units sold 12,000

Demonstrate on the elements considered as necessity : (a) Ceitag insurance Company, an upcoming insurance company writing life and Health, Liability and property contracts seeks to increase their clientele and has

How many units should be produced in January : If there were 52200 units of inventory on hand on December 31, 2021, how many units should be produced in January, 2022

What is the bond price : A corporate bond has a $1,000 face value and 15-year maturity. The bond pays semi-annual coupons with a 8.8% coupon rate. The current yield-to-maturity is 4.2%.

How hedge the exposure using currency futures : Your company sells specialized electronic components to South Africa payable in South African rands (ZAR).The following information is available on the expected

Determine if the order should be accepted or rejected : Determine if the order should be accepted or rejected. O'Malley, Inc. has a capacity of producing 300,000 units a year and sells them at $28 a unit.

What material loading charge was used : Marigold Corp. recently billed a customer $760. Labor hours were 7 and the cost of the materials used was $200. What material loading charge was used

Determine what operating income will : If the order is accepted, operating income will? The normal selling price of our product is $42 per unit. The costs of production are direct materials

What would be the effect on flint income : Flint Company is a leading manufacturer of sunglasses. What would be the effect on Flint's income if the special order were accepted?

User Account

All Pages

How hedge the exposure using currency futures

Reference no: EM133004744

Reference no: EM133004744

Questions Cloud

Reviews

Write a Review

Finance Basics Questions & Answers

Financial reporting and analysis

A report on financial accounting

Describe the types of financial ratios

Differences between sole proprietorship and corporation

Prepare a cash budget statement

What are the implied interest rates

State pricing theory and no-arbitrage pricing theory

Small business administration

Effect of financial leverage

Evaluate the basis for the payment to the lender

Importance of opps, ipps, mpfs and dmepos

Time value of money

Assured A++ Grade

Academics

Major Subjects

Majors

Get In Touch

TERMS & POLICIES

HELP & SUPPORT