What is the portfolio worth at the time of decision

Reference no: EM131786748

Question: On July 2, an American firm elected to close out its account at a British bank on August 28. The firm is expected to have 5 million British pounds in the account at the time of closing. It will convert the funds to U.S. dollars and transfer the funds to a U.S. bank. The relevant spot foreign exchange rate is $1.2949. The September British pound futures contract is priced at $1.2930. Determine the outcome of a futures hedge if on August 28 the spot rate is $1.2715 and the futures rate is $1.2725. All prices are in U.S. dollars per British pound. The British pound futures contract covers 100,000 British pounds

a. What is the portfolio worth at the time of decision?

b. What is the value of the portfolio on August 28?

c. How much is the gain or loss on the currency position (must state if gain or loss and the amount)?

d. On July 2, how many contracts does the bank need? Do you go long or short the British pound futures contract? How much is one futures contract worth at time of decision?

e. On August 28, does the bank buy or sell the futures contracts? How much is one futures contract worth?

f. Is there is a gain or loss on the futures contract? If so, how much is the gain or loss on all the contracts combined?

g. On August 28, what is the net gain or loss on the combined currency position and the futures contracts (must state if gain or loss and the amount)?

Reference no: EM131786748

Questions Cloud

What would be the cost of equity from new stock : If the company issued new stock, it would incur a 19% flotation cost. What would be the cost of equity from new stock? Round your answer to two decimal places.

Compute the total manufacturing costs for job : Job No. 176 is charged with $75,000 of direct materials costs and $90,000 of manufacturing overhead. The total manufacturing costs for Job No. 176 is

Report the percentage of people who are morbidly obese : Compare this with an estimate from 2005 that 3% of people in the United States at that time were morbidly obese.

Prepare the journal entry to record the employee payroll : Prepare the journal entry to record the employee payroll, Prepare the journal entry to record the employer payroll entry

What is the portfolio worth at the time of decision : On July 2, an American firm elected to close out its account at a British bank on August 28. The firm is expected to have 5 million British pounds.

Calculate the total indirect product costs : The Frosted pane Company, a manufacturer of fine windows and doors, Calculate the total indirect product costs

Demand for apartments in area : The area is composed exclusively of apartments and is populated by low-income residents. The people who live in the area tend to stay in that area because

Report the new labels for the vertical axis : When Billionaires Made Their First Million The histogram shows frequencies for the ages of 17 billionaires when they made their first million listed at inc.com.

What amount should the company record warrant expense : Lewis Company uses the GAAP approach of accruing warranty expense in the year of the sale

User Account

All Pages