b

Paragraph Styles (Ch. 11) VaR and Transaction Exposure Today is November 25, 2021. Easton, a U.S. company, exports baseball equipment to Taiwan. Enston expects to receive a payment of TWD 30 million on March 25, 2022. say, a 4-month maturity for the payment (TWD: Taiwanese Dollar). Easton decides to hedge this exposure using a March forward contract, which expires on March 25, 2022. The 4-month Taiwanese interest rate is 1.2%, while the 4-month U.S. interest rate is 1.5%. On November 25, the spot exchange rate is 27.88 in USDTWD. and the forward matured on March 25, 2022, trades at 27.82 today in USDTWD. (A) Use the information given in the Excel output table as below (based on 20 years of 4-month chaOes) to calculate the VaR associated with Easton's open position (use a 97.5% single-tailed level of confidence, or 2 = 1.96). (15 points) (B) Calculate the amount to be received on March 25, 2022, using a forward hedge (5 points) (C) Calculate the amount to be received on March 25, 2022, using a money market hedge. (8 points) Notes: Data is in terms of USDTWD, but the question is in terms of USD -1.c., the USD is the domestic currency DATA The information below is based on 4-month percentage changes from 2001:1 to 2020:12. 4-mo% change USD TWD 298% 0.2682% 1.50% Mean Standard Error Median Mode Standard Deviation Kuriosis Skewness Minimum Maximum 2 66% 0.592119 0 24228 9.364% 7.2586% 9 102 Sum Count 60