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You are a US, exporter of soybeans and have just recelved an order from the U.K. You will deliver soybeans today to the buyer in
You are a US, exporter of soybeans and have just recelved an order from the U.K. You will deliver soybeans today to the buyer in the U.K. and recelve o payment of 200,400 in one year. You are concerned about the dollar proceeds you will receive from this foreign sale in one year: Suppose - Forward exchange rate is $1.40 per pound - Spot exchange rate is $1.35 per pound - US, interest rate is 3.00% - U.K. interest rate is 5.00% Call option with strike price of $1.41 per pound is avallable with premium of $0.12 per pound. Put option with strike price of $1.41 per pound is avallable with premium of $0.10 per pound. Required: o-1. Unhedged Position: Suppose you decide not to do anything. In one year, the spot rate happens to be $1.45 per pound. What will be the total dollar proceeds from this sale then? 0.2. What will be the total dollor proceeds if the spot rate happens to be $1.30 per pound in one year? Q.3. What will be the total dollar proceeds if the spot rate happens to be $1.32 per pound in one year? a-4. Are you subject to exchange rate risk if you remain unhedged? b-1. Forward marker hedge. How can you guarantee an exact amount of dollar proceeds from this sale using forward contracts? Should you agree to buy or sell $200,400 forward in one year? b-2. What will be the total dollar proceeds from this sale with forward hedge? b-3. Are you subject to exchange rate risk in this case? c-1. Money marker hedge. How can you ensure guaranteed dollar proceeds from this sale using money market hedge? c-2. What will be the total dollar proceeds? c.3. Are you subject to exchange rote risk when money market hedge is used
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