please answe question 8 asap

You are the manager of a U.S. company situated in Los Angeles and manages the import/export division of the company. The company distributes (resells) a variety of consumer products imported to the U.S.A from France and also exports goods manufactured in the U.S.A. to Britain. Therefore, your company is very much dependent on the impact of current and future exchange rates on the performance of the company. Scenario 1: You have to estimate the expected exchange rates one year from now between your home currency and the other currencies of the major other countries that you deal with in terms of both imports and exports. The reason is that increases in the values of other currencies compared to the U.S. Dollar may impact your imports negatively, whilst it may on the other hand, be good for exports. To do this estimate, you obtain the following spot exchange rate information: E/$ 615 0.76918 0.87616 You also obtain the following rates that you regard as similar to the annual risk free rates applying in the countries: U.S.A. Britain France 2.660% 0.778% 0.500% Your focus is presently to estimate the 12 month forward rates in order to consider the impact that it will have on the import and export sales of the company. Calculate the forward rates of the $ in terms of all the currencies by using simple interest rate parity e.g. 10% annual interest rate = 10/2 - 5% for six months. Do not apply effective annual interest rate compounding. Show all your workings in table 1 on the separate answer sheet by using the correct formula provided in your formula sheet. Provide an indication about what will happen to the value of the US$ based on the forward exchange rate calculations by calculating the expected discount/premium of it for each of the currencies in Table 2 on the separate answer sheet. Also show whether the impact will be positive (P) or negative (N) for imports and exports. For example: Exchange % Discount/Premium Import Export rate E/S Workings by you Positive Negative 193% premium IF CASE STUDY EXCHANGE RATE HEDGING QUESTIONS2) - Last saved by user - Saved to this PC- o Layout References Mailings Review View Help EndNote X9 A A A A E EE il T x AO Aalbocoa AaBbcend AaBbcc Aabbcc AaE Normal 1 No Space Headingt Heading 2 Title ont Paragraph Styles Thes De bis PR Aceite Focus 19'C Mostly ... A DII PrtScn Home Bank applies 360 day-count convention to all currencies. (Students also have to apply 360 days in all calculations). Option premium calculations should include time value calculations based on US $ annual borrowing interest rates for applicable time periods eg. 3 month $ option premium is subject to 2.687%/4 interest rate.) a. Calculate the cost of money market hedges for the imports from France (Complete Table 3 on the separate answer sheet) b. Determine the option types that you will consider based on the exchange rate quotes provided by your bank. Remember we will long or short the base currencies in this case study the currencies that are not S) and the FV of premium cost is based on the borrowing cost of $ for the time period of the option. For example if it is a 3 month option, then the interest rate that should be applied is United States 3 month borrowing rate of 2.687%/4 -0.67175%). Calculate the total cost of using options as hedging instrument for the imports from France (Complete Table 4 on the separate answer sheet). c. Compare the forward quotes, money market hedges and options with each other to determine the best exchange rate hedges for France (Complete Table 5 on the separate answer sheet). d. Calculate the exchange rates that will apply if the money market hedges are used for the exports to Britain (Complete Table 6 on the separate answer sheet) e. Compare the forward quotes and money market hedges with each other to determine the best exchange rate hedges for Britain (Complete Table 7 on the separate answer sheet). f. Assume you entered into the forward hedge for the import from France. Two months have passed since you entered into the hedge. Interest rates are the same as before. The spot exchange rate of the S/ is now 1.14720. Calculate the value of your forward position. Please use a 360 day-count convention, since the bank also used a 360 day-count convention with the forward quotes provided to you. Also remember for interest rates use risk free rates provided under scenario 1. Show your calculation in table 8 on the separate answer sheet. END OF QUESTIONS You are the manager of a U.S. company situated in Los Angeles and manages the import/export division of the company. The company distributes (resells) a variety of consumer products imported to the U.S.A from France and also exports goods manufactured in the U.S.A. to Britain. Therefore, your company is very much dependent on the impact of current and future exchange rates on the performance of the company. Scenario 1: You have to estimate the expected exchange rates one year from now between your home currency and the other currencies of the major other countries that you deal with in terms of both imports and exports. The reason is that increases in the values of other currencies compared to the U.S. Dollar may impact your imports negatively, whilst it may on the other hand, be good for exports. To do this estimate, you obtain the following spot exchange rate information: E/$ 615 0.76918 0.87616 You also obtain the following rates that you regard as similar to the annual risk free rates applying in the countries: U.S.A. Britain France 2.660% 0.778% 0.500% Your focus is presently to estimate the 12 month forward rates in order to consider the impact that it will have on the import and export sales of the company. Calculate the forward rates of the $ in terms of all the currencies by using simple interest rate parity e.g. 10% annual interest rate = 10/2 - 5% for six months. Do not apply effective annual interest rate compounding. Show all your workings in table 1 on the separate answer sheet by using the correct formula provided in your formula sheet. Provide an indication about what will happen to the value of the US$ based on the forward exchange rate calculations by calculating the expected discount/premium of it for each of the currencies in Table 2 on the separate answer sheet. Also show whether the impact will be positive (P) or negative (N) for imports and exports. For example: Exchange % Discount/Premium Import Export rate E/S Workings by you Positive Negative 193% premium IF CASE STUDY EXCHANGE RATE HEDGING QUESTIONS2) - Last saved by user - Saved to this PC- o Layout References Mailings Review View Help EndNote X9 A A A A E EE il T x AO Aalbocoa AaBbcend AaBbcc Aabbcc AaE Normal 1 No Space Headingt Heading 2 Title ont Paragraph Styles Thes De bis PR Aceite Focus 19'C Mostly ... A DII PrtScn Home Bank applies 360 day-count convention to all currencies. (Students also have to apply 360 days in all calculations). Option premium calculations should include time value calculations based on US $ annual borrowing interest rates for applicable time periods eg. 3 month $ option premium is subject to 2.687%/4 interest rate.) a. Calculate the cost of money market hedges for the imports from France (Complete Table 3 on the separate answer sheet) b. Determine the option types that you will consider based on the exchange rate quotes provided by your bank. Remember we will long or short the base currencies in this case study the currencies that are not S) and the FV of premium cost is based on the borrowing cost of $ for the time period of the option. For example if it is a 3 month option, then the interest rate that should be applied is United States 3 month borrowing rate of 2.687%/4 -0.67175%). Calculate the total cost of using options as hedging instrument for the imports from France (Complete Table 4 on the separate answer sheet). c. Compare the forward quotes, money market hedges and options with each other to determine the best exchange rate hedges for France (Complete Table 5 on the separate answer sheet). d. Calculate the exchange rates that will apply if the money market hedges are used for the exports to Britain (Complete Table 6 on the separate answer sheet) e. Compare the forward quotes and money market hedges with each other to determine the best exchange rate hedges for Britain (Complete Table 7 on the separate answer sheet). f. Assume you entered into the forward hedge for the import from France. Two months have passed since you entered into the hedge. Interest rates are the same as before. The spot exchange rate of the S/ is now 1.14720. Calculate the value of your forward position. Please use a 360 day-count convention, since the bank also used a 360 day-count convention with the forward quotes provided to you. Also remember for interest rates use risk free rates provided under scenario 1. Show your calculation in table 8 on the separate answer sheet. END OF QUESTIONS