SOLVE ALL PARTS (A,B,C,D) OF THE FOLLOWING PROBELM (including example problem and guide for help)
Given follwoing example problem/ help guide:
A:
B:
C:
D:
KAL and Boeing. Korean Airlines (KAL) has just signed a contract with Boeing to purchase two new 747-400s for a total of USD 80,000,000. with payment in two equal tranches. The first tranche of USD 40,000,000 has just been paid. The next USD 40,000,000 is due three months from today. KAL currently has excess cash of 32,000,000,000 Korean won (KRW) in a Seoul bank, and it is from these funds that KAL. plans to make its next payment. The current spot rate is KRW792 = USD1.00, and permission has been obtained for a forward rate (90 days), KRW787 = USD1.00. The 90-day Eurodollar interest rate is 5.625%, while the 90 -day Korean won deposit rate (there is no Euro-won rate) is 4.625%. KAL can borrow in Korea at 6.125%, and can probably borrow in the U.S. dollar market at 9.500%. A three-month call option on dollars in the over-the-counter market, for a strike price of KRW783=USD1.00 sells at a premium of 3.1%, payable at the time the option is purchased. A 90-day put option on dollars, also at a strike price of KRW783 = USD 1.00 , sells at a premium of 1.8% (assuming a 12% volatility). KAL's foreign exchange advisory service forecasts the spot rate in three months to be KRW785 = USD1.00. Assume a 360-day financial year. Compare alternate ways below that KAL might deal with its foreign exchange exposure. a. How much in Korean won will KAL pay in 90 days without a hedge if the spot rate in 90 days is the same as the expected spot rate of How much in Korean won will KAL pay in 90 days without a hedge if the spot rate in 90 days is the same as the expected spot rate of KRW785 = USD1.00? KRW (Round to the nearest whole number.) b. KAL could buy USD40,000,000 forward, locking in a rate of KRW787 = USD1.00. The amount of payment in Korean won KAL will pay in 90 days with a forward market hedge is computed as follows: Payments = accounts payable 90 - day forward rate KAL and Boeing. Korean Airlines (KAL) has just signed a contract with Boeing to purchase two new 747-400s for a total of USD 80,000,000 with payment in two equal tranches. The first tranche of USD 40,000,000 has just been paid. The next USD 40,000,000 is due three months ff today. KAL currently has excess cash of 32,000,000,000 Korean won (KRW) in a Seoul bank, and it is from these funds that KAL plans to me its next payment. The current spot rate is KRW792 = USD1.00, and permission has been obtained for a forward rate ( 90 days), KRW787 = USD1.00. The 90-day Eurodollar interest rate is 5.625%, while the 90 -day Korean won deposit rate (there is no Euro-won rate) is 4.625%. KAL can bor in Korea at 6.125%, and can probably borrow in the U.S. dollar market at 9.500%. A three-month call option on dollars in the over-the-counter market, for a strike price of KRW783 = USD1.00 sells at a premium of 3.1%, payable at the time the option is purchased. A 90-day put option on dollars, also at a strike price of KRW783 = USD1.00, sells at a premium of 1.8% (assuming a 12% volatility). KAL's foreign exchange advisory service forecasts the spot rate in three months to be KRW785 = USD1.00. Assume a 360-day financial year. Compare altemate ways below that KAL might deal with its foreign exchange exposu a. How much in Korean won will KAL pay in 90 days without a hedge if the spot rate in 90 days is the same as the expected spot rate of d. KAL could cover its USD40,000,000 accounts payable by purchasing a call option on USD40,000,000. If the spot rate in 90 days is greate than the strike rate of KRW783=USD1.00, the call option would be exercised. The total cost of the call option hedge if exercised is compute as follows: Payments=(accountspayablestrikerate)+optionpremiumin90days where the call option premium in U.S. dollars carted forward 90 days at the firm's cost of capital is: Option premium in 90 days = accounts payable premium rate spot rate KAL and Boeing. Korean Airlines (KAL) has just signed a contract with Boeing to purchase two new 747400 s for a total of USD68,000,000, with payment in two equal tranches. The frst tranche of USD34,000,000 has just been paid. The next USD34,000,000 is due three months from today. KAL currently has excess cash of 28,000,000,000 Korean won (KRW) in a Seoul bank, and it is from these funds that KAL. plans to make its next payment. The current spot rate is KRW799 USD1.00, and permission has been obtained for a forward rate (90 days), KRW794= USD1.00. The 90 -day Eurodollar inferest rate is 5.875%, while the 90-day Korean won deposit rate (there is no Euro-won rate) is 4.750%. KAL can borrow in Korea at 6.125%, and can probably borrow in the U.S. dollar market at 9.125% A three-month call option on dollars in the over-the-counter market, for a strike price of KRW789=USD1.00 sells at a premium of 3.2%, payable at the time the option is purchased. A 90-day put option on dollars, also at a strike price of KRW789 = USD1.00, sells at a premium of 1.7% (assuming a 12\% volatility). KAL's foreign. exchange advisory service forecasts the spot rate in three months to be KRW791 = USD1.00. Assume a 360 -diry financial year. Compare alternate Ways below that KAL might deal with its foreign exchange exposure. a. How much in Korean won will KAL pay in 90 days without a hedge if the spot rate in 90 days is the same as the expected spot rate of KRW791 = USD1.00? b. How much in Korean won will KAL pay in 90 days with a forward market hedge? c. How much in Korean won will KAL pay in 90 days with a money market hedpe? d. How much in Korean won Wil KAL. pay in 90 days with an option hedge if the expected spot rato in 90 days is assumed to be greater than KRW789 = USD 1.00 ? e. How should KAL plan to make the payment to Boeing if KAL's goal is to maximize the amount of won cash left in the bank at the end of the three-month poriod? a. How much in Korean won will KAL pay in 90 days without a hedge if the spot rate in 90 days is the same as the expected spot rate of KRW7791 = USO1 00? KRW (Round to the nearest whole number.) KAL and Boeing. Korean Airlines (KAL) has just signed a contract with Boeing to purchase two new 747400 s for a total of USD80,000,000, with payment in two equal tranches. The first tranche of USD 40,000,000 has just been paid. The next USD40,000,000 is due three months from today. KAL currently has excess cash of 32,000,000,000 Korean won (KRW) in a Seoul bank, and it is from these funds that KAL. plans to make its next payment. The current spot rate is KRW792 = USD1.00, and permission has been obtained for a forward rate ( 90 days), KRW787 = USD1.00. The 90-day Eurodollar interest rate is 5.625%, while the 90-day Korean won deposit rate (there is no Euro-won rate) is 4.625%. KAL can borrow in Korea at 6.125%, and can probably borrow in the U.S. dollar market at 9.500%. A three-month call option on dollars in the over-the-counter market, for a strike price of KRW783= USD1.00 sells at a premium of 3.1%, payable at the time the option is purchased. A 90-day put option on doliars, also at a strike price of KRW783=USD1.00, sells at a premium of 1.8% (assuming a 12% volatility). KAL's foreign exchange advisory service forecasts the spot rate in three months to be KRW785 = USD 1.00. Assume a 360-day financial year. Compare alternate ways below that KAL might deal with its foreign exchange exposure. a. How much in Korean won will KAL pay in 90 days without a hedge if the spot rate in 90 days is the same as the expected spot rate of KKWW 31,480,000,0uU (Kound to the nearest whose number.) c. To implement a money market hedge in this case, KAL would exchange won spot and invest them for 90 days in a dollar-denominated nterest bearing account. The principal and interest in U.S. dollars at the end of the 90-day period would be used to pay the USD40,000,000 accounts payable. The amount of payment in Korean won KAL will pay in 90 days with a woney market hedge is computed as follows: Payments=1+(Eurodollarinterestrate36090)accountspayabiespotrate[1+(Koreandepositrate36090)] KAL and Boeing. Korean Airlines (KAL) has just signed a contract with Boeing to purchase fwo new 747400 s for a with payment in two equal tranches. The first tranche of USD 40,000,000 has just been paid. The next USD40,000,000 is due three months from today. KAL currently has excoss cash of 32,000,000,000 Korean won (KRW) in a Seoul bank, and it is from these funds that KAL plans to make its next payment. The curtent spot rate is KRW792= USD 1.00, and permission has been obtained for a forward rate ( 90 days). KRW787 = USD 1.00 . The 90 -day Eurodolar interest rate is 5.625%, while the 90 -day Korean won deposit rate (there is no Euro-won rate) is 4.625%. KAL can borrow in Korea at 6.125%, and can probably borrow in the U.S, dollar market at 9.500%. A three-month call option on dollars in the over-the-counter market, for a strike price of KRW783 = USD1.00 sells at a premium of 3.1%, payable at the time the option is purchased. A 90 -day put option on dollars, also at a strike price of KRW783 = USD 1.00, sells at a premium of 1.8% (assuming a 12% volatility). KAL's foreign exchange advisory service forecasts the spot rate in three months to be KRW785 = USD1.00. Assume a 360-day financial year. Compare attemate ways below that KAL might deal with its foreign exchange exposure. a. How much in Korean won will KAL pay in 90 days without a hedge if the spot rate in 90 days is the same as the expected spot rate of a. KAL could wait 90 days, exchange won for dollars at that time, and make its payment. The amount of payment in Korean won KAL will pay in 90 days without a hedge is computed as follows: Payments = accounts payable spot rate in 90 days How much in Korean won will KAL pay in 90 days without a hedge if the spot rate in 90 days is the same as the expected spot rate of KRW785 = USD1.00? KRW (Round to the nearest whole number.)
