Set up a hedging strategy using the futures market

Assignment Help Financial Management
Reference no: EM131512031

A mining company located in Australia has entered into a contract to export coal to Japan with delivery in 90 days. The contract is denominated in the Japanese Yen (JPY) and is valued at JPY500 million. The spot exchange rate is JPY/AUD0.0120. The company’s foreign exchange advisors believe the JPY will be JPY/AUD0.0105 in 90 days. Assume that there is no basis risk between the futures market and the spot FX markets. Set up a hedging strategy using the futures market. Show your calculations. Explain the outcomes of the strategy. Assume that JPY futures have a face value of JPY100 000 per contract.

Reference no: EM131512031

Questions Cloud

You observe yield curve for discount or zero-coupon : You are considering investing in11% coupon rate bond with three-year maturity and a face value of $1000. You observe yield curve for discount or zero-coupon
Strategy of sustainability-led innovation : How would an organization obtain competitive advantage through following a strategy of sustainability-led innovation? Give examples to support your case.
Divided into sections describing liquidity-asset management : The memo should be divided into sections describing liquidity, asset management, long- term debt paying ability, profitability and recommendations
Impact workforce planning activities of an organisation : Briefly discuss how the following factors impact workforce planning activities of an organisation.
Set up a hedging strategy using the futures market : Set up a hedging strategy using the futures market. Explain the outcomes of the strategy. Assume that JPY futures have a face value of JPY100 000 per contract.
Cost of debt and weighted average cost of capital : Cost of equity-Cost of debt and Weighted average cost of capital
What would the profit or loss graph look like for option : What would the profit or loss graph look like for this option?
Find the inflation rates and interest rates : Find the inflation rates and interest rates for 2016 calendar year for Australia, US, UK, China, Germany and Japan.
Lower interest costs by borrowing offshore on covered basis : Can the Australian firm achieve lower interest costs by borrowing offshore on a covered basis?

Reviews

Write a Review

Financial Management Questions & Answers

  Current market rate of interest on the bright sun bonds

Bright Sun, Inc. sold an issue of 30-year $1,000 par value bonds to the public. The bonds had a 11.14 percent coupon rate and paid interest annually. It is now 9 years later. The current market rate of interest on the Bright Sun bonds is 8.82 percent..

  Regression and receivables

Edwards Industries has $280 million in sales. The company expects that its sales will increase 20% this year. Edwards' CFO uses a simple linear regression to forecast the company's receivables level for a given level of projected sales. Given the est..

  What is the implied value of each warrant

Charles River Company has just sold a bond issue with 10 warrants attached. The bonds have 20-year maturity, an annual coupon rate of 12%, and they are sold at their $1000 par. The yield on similar straight bonds is 15%. What is the implied value of ..

  What tax benefits might you expect over the life

As a Small Investor with Income of $100,000 or less and with $100,000 to invest in one/several RE opportunities – What would you do and What Tax Benefits might you expect over the life of your investments?

  What effective annual interest rate corresponds

What effective annual interest rate corresponds to the following?

  Compute the expected share price-perpetual growth method

Suppose the dividends for the Seger Corporation over the past six years were $1.36, $1.44, $1.53, $1.61, $1.71, and $1.76, respectively. Compute the expected share price at the end of 2014 using the perpetual growth method.

  How much did CCCs stock return during the month

You are considering investing in Cho's Chocolate Confectionary (CCC). CCC's stock price last month was 63.16, CCC's stock price this month was 45.19. As well, CCC paid a dividend of 7.67. After the dividend was paid but before the end of the month, C..

  Evaluate the depreciation on the building

Evaluate the depreciation and what was Happe's Interest Expense on the bond during fiscal year 2012? What was Andersen Telecom's depreciation expense for tax purposes in fiscal year 2012?

  Budget set that is called the contingency budget

After determining the project budget, there is typically another budget set that is called the Contingency Budget.

  After-tax cost of debt-cost of preferred stock and rp

Cost of Preferred Stock Tunney Industries can issue perpetual preferred stock at a price of $61.00 a share. The stock would pay a constant annual dividend of $5.00 a share. What is the company's cost of preferred stock, rp?

  Forward rate forecast is tied to interest rate differential

Mexican interest rates are normally substantially higher than U.S. interest rates. What does this imply about the forward rate as a forecast of the future spot rate? Does the forward rate reflect a forecast of appreciation or depreciation of the Mexi..

  What is the present value of the constant income flows

Based on the CAPM, which of the above shares are undervalued, overvalued or correctly valued on the share market? Show all calculations and reasons for your answers.

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!

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