Show how the potential translation loss can be hedged

Reference no: EM131114512

In Example 10.2, a forward contract was used to establish a derivatives "hedge" to protect Centralia from a translation loss if the euro depreciated from €1.1 000/ $1.00 to €1.1,786/$1.00. Assume that an over-the-counter put option on the euro with a strike price of € 1.1393/$ 1:00 (or $0.8777/€1.00) can be purchased for $0.0088 per euro. Show how the potential translation loss can be ''hedged'' with an option contract.

Reference no: EM131114512

Questions Cloud

Investment in a subsidiary company : Classification Issues-Intangibles) Presented below and on the next page is a list of items that could be included in the intangible assets section of the balance sheet.

Karen austin corporation has capitalized software costs : Karen Austin anticipates earning $980,000 in additional future revenues from this product, which is estimated to have an economic life of 4 years. Compute the amount of software cost amortization for the first year.

Briefly discuss the various types of international banking : Briefly discuss the various types of international banking offices.

Briefly discuss some of the service that international banks : Briefly discuss some of the service that international banks provide their customers and the marketplace.

Show how the potential translation loss can be hedged : Assume that an over-the-counter put option on the euro with a strike price of € 1.1393/$ 1:00 (or $0.8777/€1.00) can be purchased for $0.0088 per euro. Show how the potential translation loss can be ''hedged'' with an option contract.

Sinise industries acquired two copyrights during 2010 : Sinise Industries acquired two copyrights during 2010. One copyright related to a textbook that was developed internally at a cost of $9,900.

Centralia and its affiliates carry inventory and fixed asset : Assume that FASB 8 is still in effect instead of FASB 52. Construct a consolidated balance sheet for Centralia Corporation and its affiliates after a depreciation of the euro from €1.1000/$1.00 to €1.1786/$1.00 that is the counterpart to Exhibit 10.7..

Nieland industries had one patent recorded on its books : At what amount should patent(s) be reported on the December 31, 2010, balance sheet, assuming monthly amortization of patents?

Centralia and its affiliates carry inventory and fixed asset : Assume that FASB 8 is still in effect instead of FASB 52. Construct a translation exposure report for Centralia Corporation and its affiliates that is the counterpart to Exhibit 10.6 in the text. Centralia and its affiliates carry inventory and fixed..

User Account

All Pages