I need some help on questions 12, 13, 14, 15 seen on the attached document.

Thanks in advance

Week 4 Work Problems Part 1 Question 1. Please provide your name (Type: Fill In The Blank Survey) ___________ Question 2. Princess Cruise Company (PCC) purchased a ship from Mitsubishi Heavy Industry. PCC owes Mitsubishi Heavy Industry 500 million yen in one year. The current spot rate is 124 yen per dollar and the one-year forward rate is 110 yen per dollar. The annual interest rate is 5% in Japan and 8% in the U.S. PCC can also buy a one-year call option on yen at the strike price of $.0081 per yen for a premium of .014 cents per yen. Note: Provide your answer in whole dollars to (a) and (b). In (c), if there is no number, then enter \"none\". (a) Compute the future dollar costs of meeting this obligation using money market and forward hedges. Money Market Hedge: ___________ Forward Hedge: ___________ (b) Assuming that the forward exchange rate is the best predictor of the future spot rate, compute the expected future dollar cost of meeting this obligation when the option hedge is used. ___________ (c) At what future spot rate do you think PCC may be indifferent between the option and forward hedge? ___________ Created with iSpring QuizMaker www.ispringsolutions.com Question 3. You plan to visit Geneva, Switzerland in three months to attend an international business conference. You expect to incur the total cost of SF 5,000 for lodging, meals and transportation during your stay. As of today, the spot exchange rate is $0.60/SF and the three-month forward rate is $0.63/SF. You can buy the three-month call option on SF with the exercise rate of $0.64/SF for the premium of $0.05 per SF. Assume that your expected future spot exchange rate is the same as the forward rate. The three-month interest rate is 6 percent per annum in the United States and 4 percent per annum in Switzerland. Note: Express your answer to (a) and (b) in $ to two decimal places. In (c), express your answer in $ per SF to five decimal places. Skip part (d). (a) Calculate your expected dollar cost of buying SF 5,000 if you choose to hedge using the call option on SF. ___________ (b) Calculate the future dollar cost of meeting this SF obligation if you decide to hedge using a forward contract. ___________ (c) At what future spot exchange rate will you be indifferent between the forward and option market hedges? ___________ (d) Illustrate the future dollar costs of meeting the SF payable against the future spot exchange rate under both the options and forward market hedges. Question 4. A study of Fortune 500 firms hedging practices shows that ( ) over 90 percent of Fortune 500 firms use forward contracts. ( ) over 90 percent of Fortune 500 firms use options contracts. ( ) Both a and b ( ) None of the above Created with iSpring QuizMaker www.ispringsolutions.com Question 5. Transaction exposure is defined as ( ) the sensitivity of realized domestic currency values of the firm's contractual cash flows denominated in foreign currencies to unexpected exchange rate changes. ( ) the extent to which the value of the firm would be affected by unanticipated changes in exchange rate. ( ) the potential that the firm's consolidated financial statement can be affected by changes in exchange rates. ( ) ex post and ex ante currency exposures. Question 6. The most direct and popular way of hedging transaction exposure is by ( ) exchange-traded futures options. ( ) currency forward contracts. ( ) foreign currency warrants. ( ) borrowing and lending in the domestic and foreign money markets. Question 7. If you have a long position in a foreign currency, you can hedge with: ( ) A short position in an exchange-traded futures option ( ) A short position in a currency forward contract ( ) A short position in foreign currency warrants ( ) Borrowing (not lending) in the domestic and foreign money markets Created with iSpring QuizMaker www.ispringsolutions.com Question 8. The sensitivity of the firm's consolidated financial statements to unexpected changes in the exchange rate is ( ) transaction exposure. ( ) translation exposure. ( ) economic exposure. ( ) None of the above Question 9. With any hedge ( ) your losses on one side should about equal your gains on the other side. ( ) you should try to make money on both sides of the transaction: that way you make money coming and going. ( ) you should spend at least as much time working the hedge as working the underlying deal itself. ( ) you should agree to anything your banker puts in front of your face. Question 10. A CFO should be least worried about ( ) transaction exposure. ( ) translation exposure. ( ) economic exposure. ( ) None of the above Created with iSpring QuizMaker www.ispringsolutions.com Question 11. From the perspective of a corporate CFO, when hedging a payable versus a receivable ( ) credit risk considerations are more germane for a payable. ( ) credit risk considerations are more germane for a receivable. ( ) None of the above Created with iSpring QuizMaker www.ispringsolutions.com Question 12. US Copper Inc. has agreed to purchase 3 billion PEN (Peruvian Sol) of copper from Rio Plata Ltd of Peru in one year. No forwards are available on the PEN but US Copper wants to hedge the PEN-USD exchange rate risk nevertheless. Consequently, US Copper wishes to construct a money market hedge and has the following information: Bid Spot Rate (PEN per 1 USD) 1-Year Bank Rates Ask 2.950 3.050 Deposit Loan USD1.20% 4.80% PEN3.30% 7.00% Help US Copper construct this money market hedge using the above spot exchange rates available from currency dealers and the loan and deposit rates available from US Copper's banks. HINT: dollars would be borrowed now (December 31, 2015) and the payment of PEN 3 billion would be made in one year (December 31, 2016). There would be no initial net cash flow for US Copper and no subsequent PENdenominated payments. To answer this question, complete the following table. Provide value in millions to two decimal places and indicate outflows/payments with \"-\" and include commas in numerical answers - 1,234,567 not 12345657: Note: Do not use rounded intermediate calculations. 2015 Borrow USD M Sell USD M Receive PEN M Deposit PEN M 2016 984.46 -984.46 ___________ ___________ Created with iSpring QuizMaker www.ispringsolutions.com Withdraw Deposit PEN M 3,000.00 Make Equity Investment PEN M -3,000.00 Pay Principal and Interest USD M ___________ Question 13. ABC, located in the Florida, has an accounts payable obligation of 1.5 million payable in one year to the National Bank of Paris. The current spot rate is $1.05 per and the one year forward rate is $1.07 per . The annual interest rate is 1% in the Eurozone and the annual interest rate is 2% in the US. ABC can also buy a one-year call option on at a strike price of $1.05 per for a premium of $0.01 per . If ABC hedges this risk exposure using a forward hedge, what will this accounts payable cost ABC in one year? ( ) $1.5906M ( ) $1.6050M ( ) $1.5903M ( ) $1.4286M Question 14. ABC, located in the Florida, has an accounts payable obligation of 1.5 million payable in one year to the National Bank of Paris. The current spot rate is $1.05 per and the one year forward rate is $1.07 per . The annual interest rate is 1% in the Eurozone and the annual interest rate is 2% in the US. ABC can also buy a one-year call option on at a strike price of $1.05 per for a premium of $0.01 per . If ABC hedges this risk exposure using an option hedge, what will be the cost to ABC in one year? Assume ABC borrows the option premium cost through a one year $ loan and the forward rate exactly predicts the future spot rate. ( ) $1.5906M ( ) $1.6050M ( ) $1.5903M ( ) $1.4286M Created with iSpring QuizMaker www.ispringsolutions.com Question 15. ABC, located in the Florida, has an accounts payable obligation of 1.5 million payable in one year to the National Bank of Paris. The current spot rate is $1.05 per and the one year forward rate is $1.07 per . The annual interest rate is 1% in the Eurozone and the annual interest rate is 2% in the US. ABC can also buy a one-year call option on at a strike price of $1.05 per for a premium of $0.01 per . If ABC hedges this risk exposure using a money market hedge, what will be the cost to ABC in one year? ( ) $1.5906M ( ) $1.6050M ( ) $1.5903M ( ) $1.4286M Created with iSpring QuizMaker www.ispringsolutions.com