Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Q1. Suppose Japan importspharmaceutical productsfrom the US and have $61 million payment due in 9 months. The current annual borrowing and lending rate of $

Q1. Suppose Japan importspharmaceutical productsfrom the US and have $61 million payment due in 9 months. The current annual borrowing and lending rate of $ is 5% and 4% respectively while the annual borrowing and lending rate of is 12% and 10% respectively. The spot rate is 6.36/$ now and6.65/$ in 9 months with no spread.

Japan uses a money market hedge to protect the value of this payment.

What is Japan's profit/loss (in ) on the money market hedge in 9 months.

a. -3667349.398

b. 31223488.372

c. 45401428.571

d. 39045596.330

e. None of the options

f. 22329357.798

Q2. Suppose UNSW is contracting with 3M to purchase 31000 face masks for its staff and students from the United States. UNSW and 3M decide to share currency risk. As part of the risk sharing arrangement they set a base rate of USD 1.13/AUD. There is a neutral zone that spansUSD 1.0735/AUD to USD 1.1865/AUD. Exchange rate movement outside of this neutral zone is shared equally. Suppose the rate at maturity is USD 1.356/AUD. What is the realized contractual exchange rate at which they transact?

a.USD 1.215/AUD

b.USD 0.989/AUD

c.USD 1.356/AUD

d.USD 1.045/AUD

e.USD 1.13/AUD

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Contemporary Financial Management

Authors: James R Mcguigan, R Charles Moyer, William J Kretlow

10th Edition

978-0324289114, 0324289111

More Books

Students also viewed these Finance questions

Question

identify the major consequences of burnout, boredom and engagement;

Answered: 1 week ago

Question

importance of acceleration and deceleration skills in sports

Answered: 1 week ago

Question

What are the objectives of Human resource planning ?

Answered: 1 week ago

Question

Explain the process of Human Resource Planning.

Answered: 1 week ago