4. (Ch. 11) Today is November 25, 2020. Easton, a U.S. company, exports baseball equipment to Taiwan. Easton expects to receive a payment of TWD 50 million on April 25, 2021, say, a 5-month maturity for the payment (TWD=Taiwanese Dollar). Easton decides to hedge this exposure using an April forward contract, which expires on April 25, 2021. The 5-month Taiwanese interest rate is 4%, while the 5-month 2 U.S. interest rate is 1.3%. On November 25, the spot exchange rate is 29.78 in USDTWD, and the forward matured on April 25, 2021, trades at 30.12 today in USDTWD. (A) Use the information given in the Excel output table as below (based on 20 years of 5-month changes) to calculate the VAR associated with Easton's open position (use a 97.5% single-tailed level of confidence, or == 1.96). (15 points) (B) Calculate the amount to be received on April 25, 2021, using a forward hedge. (5 points) (C) Calculate the amount to be received on April 25, 2021, using a money market hedge. (8 points) Notes: Data is in terms of USDTWD, but the question is in terms of USD -1.e., the USD is the domestic currency. DATA The information below is based on 5-month percentage changes from 2000:1 to 2019:12. 5-mo% change USDTWD Mean -3.85% 0.2972% -1.45% Standard Error Median Mode Standard Deviation Sample Variance Kurtosis Skewness Range Minimum Maximum Sum Count 3.24% 2.1 0.561619 -0.26282 8.2225 -10.365% 7.8576% -9.202 48 4. (Ch. 11) Today is November 25, 2020. Easton, a U.S. company, exports baseball equipment to Taiwan. Easton expects to receive a payment of TWD 50 million on April 25, 2021, say, a 5-month maturity for the payment (TWD=Taiwanese Dollar). Easton decides to hedge this exposure using an April forward contract, which expires on April 25, 2021. The 5-month Taiwanese interest rate is 4%, while the 5-month 2 U.S. interest rate is 1.3%. On November 25, the spot exchange rate is 29.78 in USDTWD, and the forward matured on April 25, 2021, trades at 30.12 today in USDTWD. (A) Use the information given in the Excel output table as below (based on 20 years of 5-month changes) to calculate the VAR associated with Easton's open position (use a 97.5% single-tailed level of confidence, or == 1.96). (15 points) (B) Calculate the amount to be received on April 25, 2021, using a forward hedge. (5 points) (C) Calculate the amount to be received on April 25, 2021, using a money market hedge. (8 points) Notes: Data is in terms of USDTWD, but the question is in terms of USD -1.e., the USD is the domestic currency. DATA The information below is based on 5-month percentage changes from 2000:1 to 2019:12. 5-mo% change USDTWD Mean -3.85% 0.2972% -1.45% Standard Error Median Mode Standard Deviation Sample Variance Kurtosis Skewness Range Minimum Maximum Sum Count 3.24% 2.1 0.561619 -0.26282 8.2225 -10.365% 7.8576% -9.202 48
