Answered step by step
Verified Expert Solution
Question
1 Approved Answer
jim Logan owner of the sport export company sume that the British pound highly euro. An Australi denominated in Austrian The Austrian Govermment's reliance Australian
jim Logan owner of the sport export company
sume that the British pound highly euro. An Australi denominated in Austrian The Austrian Govermment's reliance Australian comnimore highly correlated with the Austrian Schilling than with the n company has substantial monthly exports to the United Kingdom in the British currency, and it also has substantial monthlyexports to economic exposure of this company would J. monetary means of tuning the economy won monetary polcy (as opposed to fiscal polly) as a Jlim Logan, owner of the Sports Exports Company, will b reng 10,000 British pounds one month from exposure because he believes that there are two possible scenarios: (1) the pou per cent over the next month, or (2) the pound will appreciate by 2 per cent ov)will oco is a 70 per cent chance that (1) will occur. There is a 30 per cent chance that (2) w notices that the prevailing (10 Marks) now as payment for exports produced and sent by his company. Logan is cerned about his the next month. Ther will occur. Logan spot rate of the pound is A$1.65, and the one-month forward rate is A$1.645 Logan can purchase a put option over the counter from a securities company that has an exercise (strike) price of A$1.645, a premium of A$0.025 and an expiration date of one mon from now. Determine the amount of Australian dollars received by the Sports Exports Company if the a. receivables to be received in one month are not hedged under each of the two exchange rate scenarios. b. Determine the amount of Australian dollars received by the Sports Exports Company if a put option is used to hedge receivables in one month under each of the two exchange rate scenarios Determine the amount of Australian dollars received by the Sports Exports Company if a forward hedge is used to hedge receivables in one month under each of the two exchange rate scenarios c. d. Summarise the results of Australian dollars received based on an unhedged strategy, a put option strategy and a forward hedge strategy. Select the strategy that you prefer based on the information provided. What is the break-even strike price between the put option and forward rate hedging strategy? e. ts Exports Company receives British pounds each month as payment for the footballs that i t anticipates that the pound will depreciate over time against the Australian dollar 5 Mark How can the Sports Exports Company use currency futures contracts to hedge a exchange rate risk? Are there any limitations of using currency futures contractsStep by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started