USE EXCEL

4. An Irish company has just agreed to sell services to an Israeli customer for ILS 10m (Israeli Shekels). It expects to receive payment in six months. The customer hedges its exposure by selling the ILS six months forward to AIB. The six- month continuously compounded ILS and Euro spot rates are 0.1% p.a. and -0.53% p.a., respectively. The spot exchange rate is ILS 3.73/: What forward exchange rate can the company secure? 5. If the expected exchange rate volatility is 18% p.a. over the next six months, what's the 95th percentile exposure faced by AIB? Characterise the counterparty credit risk in option terms. Plot the CCR over the life of the contract. If the company was hedging an ILS 10m purchase, what's the 95th percentile exposure faced by AIB? Characterise the counterparty credit risk in option terms. 7. Why does AIB's exposure differ in the two circumstances outlined? 6. 4. An Irish company has just agreed to sell services to an Israeli customer for ILS 10m (Israeli Shekels). It expects to receive payment in six months. The customer hedges its exposure by selling the ILS six months forward to AIB. The six- month continuously compounded ILS and Euro spot rates are 0.1% p.a. and -0.53% p.a., respectively. The spot exchange rate is ILS 3.73/: What forward exchange rate can the company secure? 5. If the expected exchange rate volatility is 18% p.a. over the next six months, what's the 95th percentile exposure faced by AIB? Characterise the counterparty credit risk in option terms. Plot the CCR over the life of the contract. If the company was hedging an ILS 10m purchase, what's the 95th percentile exposure faced by AIB? Characterise the counterparty credit risk in option terms. 7. Why does AIB's exposure differ in the two circumstances outlined? 6