Scenario 2: Considering the calculations you have done so far, you need to attend to a number of import transactions for goods that companies in the United states expressed interest in. The first transaction is for the import of good quality wines from france, since a refail liquor trading chain customer in the United States, for who you have been doing imports over the past five years has a very large order this time. The producer in France informed you that the current cost of the wine that you want to import is and 2,500,000. The producer in France will only ship goods in three month' time due to seasonal differences but payment will have to be conducted six months from now. The second transaction is for the export of 3d printers manufactured in the U.S.A. The country where it wit be exported to is Canada. The payment of CAD 2,500,000 for the export to Canada will be recelved twelve months from now. You consider different transaction hedges, namely forwards, options and money market hedges. You are provided with the following quotes from your bank, which is an international bank with branches in all the countries: Forward rates: Bank applies 360 day-count convention to all currencies (for this assignment apply 360 days in all calculations). Annual borrowing and investment rates for your company: Annual borrowing and investment rates for your company: Bank applies 360 day-count convention to all currencies. Explanation - e.g. 3 month borrowing rate on $=2.687%. This is the annual borrowing rate for 3 months. if you only borrow for 3 months the interestrate is actually 2.587%/4=0.67175% (always round to 5 decimals when you do calculations). Furthermore, note that these are the rates at which your company borrows and invests. The rates are not borrowing and investment rates from a bank perspective. pusere 2 of 7 Ontion prices: Bank applies 360 day count convention to all currencies. (Students also have to apply 360 days in all calculations). Option premium calculations should indude time value calculations based on us $ annual borrowing interestrates for applicable time periods es: 3 month $ option premium is subject to 2.687%/4 interest rate) a. Calculate the cost of money market hedges for the import from France (Complete Yable 3 an the separate answer steeth 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 $ ) and the FV of premium cost is based on the borrowing cost of $ for the time. pefiod 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=0.6/175%). Calculate the total cost of using options as hedging instrument for the import from france (Complete Table 4 on the separate answer sheet). c. Compare the forward quotes, moner market hedges and options with each other to determine the best exchange rate hedge for France (Complete Table 5 on the separate answer sheet] d. Calculate the exchange rates that will appliy if the money market hedges are used for the export to Canada (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 Canada (Complete Table 7 on the separate answer sheet) f. Assume you entered into the forward hedge for the import from France. Three months have passed since you entered into the hedge. interest rates are the same as before. The spot ecchange rate of the S/ is 1.15S10. Calculate the value of your forward position. Please tre a 360 day-count convention, since the tank also used a 360 day-count convention with the forward quates 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. Table 1: Calculation of 3 month forward rates using the simple interest rate parity principle (4 marks) Table 2: Discounts/Premium of US\$ ( 6 marks) Table 3: France import cost with money market hedge: ( 8 marks) Table 4: France import cost with option hedge: (8 marks) Table 5: France: Exchange rate hedges compared: (3 marks) Which hedging technique should be applied? (3 marks) Table 6: Canada export with money market hedge: ( 8 marks) Table 7: Canada exchange rate hedges compared: ( 2 marks) Which hedging technique should be applied? (3 mark: Table 8: Value of the forward position ( 5 marks)