International Finance Homework 3 This homework is largely drawn for Eun and Resnick's text book. 1) The Mexican peso futures contract is trading at 0.07713 S/MXN. Contract size for the Mexican peso future is 500,000 pesos. You believe the spot price will be 0.08365 S/MXN at expiration. What speculative position would you enter into to profit from your beliefs? Calculate your anticipated profits assuming you take a position in three contracts. What is the size of your profit or loss if the futures price is indeed an unbiased predictor of the future spot price and this price materializes? 2) Do problem 1 again assuming you believe the spot price will be 0.07061 $/MXN. 3) Assume that the Japanese yen is trading at a spot price of 92.04 cents per 100 yen. Further assume that the premium of an American call (put) option with a strike price of 93 is 2.10 (2.20) cents. Calculate the intrinsic value and the time value of the call and put options. 4) Airbus sold an A400 aircraft to Delta Airlines, a U.S. company, and billed $30 million payable in six months. Airbus is concerned about the euro proceeds from international sales and would like to control exchange risk. The current spot exchange rate is 1.05 $/euro and the six-month forward rate exchange rate is 1.10 $/euro. Airbus can buy a six-month put option on U.S. dollars with a strike price of 0.95 euro/$ for a premium of .O2 euro per U.S. dollar. Currently, the six- month interest rate is 2.5% in the euro zone and 3% in the United States. a. Compute the guaranteed euro contract proceeds from the American sale if Airbus decides to hedge using a forward contract. b. if Airbus decides to hedge using money market instruments, what action does Airbus need to take? What would be the guaranteed euro proceeds from the American sale in this case? c. If Airbus decides to hedge using put options on U.S. dollars, what would be the "expected" euro proceeds from the American sale? Assume that Airbus regards the current forward exchange rate as an unbiased predictor of the future spot rate. d. At what future spot exchange rate do you think Airbus will be indifferent between the option and money market hedge