Example on hedge fund, Financial Management

Assignment Help:

Q. Example on hedge fund?

Hedge Fund enters agreement to sell HK$ in six month's. At expiration the Hedge Fund requires to buy spot HKD and deliver these against the short future's position.

If the peg embraces the cost of replacing the HKD it has sold is fundamentally the 6 month differential between USD and HKD interest rates.

On Thursday August 20th the dissimilarity in inter-bank interest rates was about 6.3% Hong Kong rates being higher due to heavy demand for HKD loans which are needed to short the currency. Consequently a hedge fund manager making a USD 1 million bet Thursday against the HKD would have paid USD63000.

If the finance manager believed that the peg would break and thus the HKD depreciate say about 30% then the potential profit would be USD300000. Evaluated to the cost of making the trade USD63000 this is a good profit.


Related Discussions:- Example on hedge fund

State the analytical procedures at the planning stage, State the Analytical...

State the Analytical procedures at the planning stage Auditors must apply analytical procedures at the planning stage to help in understanding the entity's business, in identi

Inverse floaters, Normally, floater coupon rate moves in the same dir...

Normally, floater coupon rate moves in the same direction as the reference rate. That is, with an increase in the reference rate, the floater coupon rate also increases

Estimate the total rate of return, Question: Explain: (a) the advant...

Question: Explain: (a) the advantages and disadvantages, to a company, of debt finance over equity finance; (b) the reasons why a company may choose to issue preference s

Determine the cost of capital in emerging nation, How can we measure a comp...

How can we measure a company's cost of capital in emerging nations, especially when there is no state bond which we could take as a reference? Although there is no state bond w

Valuation and duration of callable bonds , A callable bond is simil...

A callable bond is similar to an Option-free bond with a call option from the bondholder. It can be thought of as the sale of a call option by the investor

Forms of liquidity, Forms of Liquidity: Definition: Liquidity defines ...

Forms of Liquidity: Definition: Liquidity defines to how quickly and cheaply an asset will be converted into cash. Money (in the form of cash) is the most liquid asset. Assets

Bajaj Electronics, 1. How would you judge the potential profit of Bajaj Ele...

1. How would you judge the potential profit of Bajaj Electronics on the first year of sales to Booth Plastics and give your views to increase the profit?

Effect on stock valuation, Effect on Stock Valuation Until the 1960s, c...

Effect on Stock Valuation Until the 1960s, common stocks were viewed as a good instrument against loss caused by inflation. Also, before 1960, stocks were not providing full he

"a" round financing, "A" Round Financing "A" Round Financing is the fir...

"A" Round Financing "A" Round Financing is the first main round of business financing through private equity investors or venture capitalists. In private equity investing, an "

Write Your Message!

Captcha
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