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Problem 2: (3 points) I am a US wine importer who is importing Portugese wine from For no is importing Portugese wine from Portugal worth 1 million and the amount is due in one year. I want to hedge my euro pavables on hedge and obtain the following quotes from my banker: y euro pavables using a money market Spot rate is: The Portugese interest rates are: US interest rates are: $1.3000-S 1.3100/ 4 % - 4.6 % annually and 3.1 -3.6 % annually. Using a money market hedge and bid-ask spreads, what are my payables ! days? spreads, what are my payables in dollars in 360 U U FUIT B Futures) (A) A U.S. firm has exported goods to Brazil worth Real 1 million, receivable in three months. The spot rate today is $0.25 / Real and the firm is afraid that the Real will depreciate. To hedge the receivables the firm buys a 3-month OTC option on the Real with an exercise/ strike price of $0.25/ Real at an option price of $0.01/ Real. Suppose 3 months later the spot rate settles at S0.23 / Real. (i) What option will the firm use? (11) Af maturity three months later, will the firm exercise the option hedge or not? Why or why nors (iii) What is the total account receivables in US S to the U.S. firm, including the cost of the option? (B) On June 15, a US firm is planning to import Mexican caviar worth Pesos 2 million due on July 15 (one month later). The firm decides to hedge its payables position by using September peso futures. The spot rate on June 15 is USS 0.0730 / peso and the September futures price on June 15 is at $0.0765 per peso. One month late on July 15, the spot rate is $0.0670 / peso while the September futures price is $0.0715/ peso. Assume contract size is 2 million pesos. (i) Calculate the net gain or loss from the futures? (ii) What is the total net cost of APs in US $ to the U.S. importer? (Hint: use three step futures hedging process). Problem 2: (3 points) I am a US wine importer who is importing Portugese wine from For no is importing Portugese wine from Portugal worth 1 million and the amount is due in one year. I want to hedge my euro pavables on hedge and obtain the following quotes from my banker: y euro pavables using a money market Spot rate is: The Portugese interest rates are: US interest rates are: $1.3000-S 1.3100/ 4 % - 4.6 % annually and 3.1 -3.6 % annually. Using a money market hedge and bid-ask spreads, what are my payables ! days? spreads, what are my payables in dollars in 360 U U FUIT B Futures) (A) A U.S. firm has exported goods to Brazil worth Real 1 million, receivable in three months. The spot rate today is $0.25 / Real and the firm is afraid that the Real will depreciate. To hedge the receivables the firm buys a 3-month OTC option on the Real with an exercise/ strike price of $0.25/ Real at an option price of $0.01/ Real. Suppose 3 months later the spot rate settles at S0.23 / Real. (i) What option will the firm use? (11) Af maturity three months later, will the firm exercise the option hedge or not? Why or why nors (iii) What is the total account receivables in US S to the U.S. firm, including the cost of the option? (B) On June 15, a US firm is planning to import Mexican caviar worth Pesos 2 million due on July 15 (one month later). The firm decides to hedge its payables position by using September peso futures. The spot rate on June 15 is USS 0.0730 / peso and the September futures price on June 15 is at $0.0765 per peso. One month late on July 15, the spot rate is $0.0670 / peso while the September futures price is $0.0715/ peso. Assume contract size is 2 million pesos. (i) Calculate the net gain or loss from the futures? (ii) What is the total net cost of APs in US $ to the U.S. importer? (Hint: use three step futures hedging process)
