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please answer these 12. If the U.S. stock market is efficient, how do you explain the fact that some people make very high returns? Would
please answer these
12. If the U.S. stock market is efficient, how do you explain the fact that some people make very high returns? Would it be more difficult to reconcile very high returns with efficient markets if the same people made extraordinary returns year after year? 4. Kansas Corp., an American company, has a payment of 5 million due to Tuscany Corp. one year from today. At the prevailing spot rate of 0.90/$, this would cost Kansas $5,555,556, but Kansas faces the risk that the /$ rate will fall in the coming year, so that it will end up paying a higher amount in dollar terms. To hedge this risk, Kansas has two possible strategies. Strategy 1 is to buy 5 million forward today at a oneyear forward rate of 0.89/$. Strategy 2 is to pay a premium of $100,000 for a one-year call option on 5 million at an exchange rate of 0.88/$. a. Suppose that in one year the spot exchange rate is 0.85/$. What would be Kansas's net dollar cost for the payable under each strategy? b. Suppose that in one year the spot exchange rate is 0.95/$. What would be Kansas's net dollar cost for the payable under each strategy? c. Which hedging strategy would you recommend to Kansas Corp.? Why Step by Step Solution
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