Question
1. Watson Bhd is a Malaysian firm that has exports of USD2,000,000 and expects to receive the amount in one year from now. Given that,
1. Watson Bhd is a Malaysian firm that has exports of USD2,000,000 and expects to receive the amount in one year from now. Given that, the one-year U.S. interest rate is 4% and the one-year Malaysian interest rate is 7%. Currently the spot rate of the Malaysian Ringgit against USD is RM4.25USD. Watson Bhd expects that the spot rate will be RM4.55 in one year. There is a put option available on US dollar with an exercise price of RM4.60USD and a premium of RM0.03. a) Determine the amount of dollars that Watson Bhd will receive at the end of one year if it implements a money market hedge. b) Determine the amount of dollars that Watson Bhd will receive at the end of one year if it implements a put option hedge. 2. Briefly explain how operating exposures is different from translation exposures. 3. List three main types of transactions from which transaction exposure arises. 4. Describe how Multinational Companies are using Leads and Lag Proactive Management of Operating Exposure.
Individual Assignment Carries 30%
Sunway University
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