Instructions: Show all calculations in detail. No partial credit will be given for just 1) Assume the following information: U.S. deposit rate for 1 year U.S. borrowing rate for 1 year New Zealand deposit rate for 1 year - 8% New Zealand borrowing rate for 1 year 10% New Zealand dollar forward rate for 1 year $.40/NZS New Zealand dollar spot rate - $.39/NPS Also assume that a U.S. exporter denominates its New Zealand exports in NZS and expects to receive NZ$600,000 in 1 year. You are a consultant for this firm. Using the information above, what will be the approximate value of these exports in 1 year in U.S. dollars given that the firm executes a money market hedge? 2) The forward rate of the Swiss franc is $.50. The spot rate of the Swiss franc is $.48. The following interest rates exist: US 7% Switzerland 360-day borrowing rate 360-day deposit rate You need to purchase CHF200,000 in 360 days. If you use a money market hedge, the amount of dollars you need in 360 days is: 3) An importer of Swiss watches has an account payable of CHF750,000 due in 90 days. The following data is available: Rates and prices in US-cents/CHF. Spot rate: 71.42 cents/CHF 90-day forward rate: 71.14 cents/CHF US dollar 90-day interest rate: 3.75% per year Swiss franc 90-day interest rate: 5.33% per year Option Data in cents/CHF Strike Call 2.55 1.55 Put 1.42 2.40 a) Assess the USD cost to the importer in 90 days if it uses a call option to hedge its CHF750,000 account payable. Use the call with a strike price of 72 cents/CHF and include the option call premium in the cost. b) What will be the cost of the payable in 90 days if a forward contract is used? c) By how much must the CHF weaken relative to the USD, from 71.42 cents/CHF before the call option provides a lower cost than the forward hedge? to strike Proce. 4) Assume that Jones Co. will need to purchase 100,000 Singapore dollars (SGD) in 180 days. Today's spot rate of the SGD is $.50, and the 180-day forward rate is $.53. A call option on SGD exists, with an exercise price of $.52, a premium of $.02, and a 180-day expiration date. A put option on SGD exists, with an exercise price of $.51, a premium of $.02, and a 180-day expiration date. Jones has developed the following probability distribution for the spot rate in 180 days: Possible Spot Rate in 180 Days for SGD $.48 $.53 $.55 Probability 10% 60% 30% The probability that a forward hedge will result in a higher payment than the options hedge is 107. (include the amount paid for the premium when estimating the U.S. dollars required for the options hedge). than the .48 x B100,000 = $48,000, which is less amoont paid with the forward hedge (8.53 x $100.000)= $53,000
