1)Spears Co. will receive SF1,000,000 in 30 days. Use the following information
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Question
1)Spears Co. will receive SF1,000,000 in 30 days. Use the following information to determine the total dollar amount received (after accounting for the option premium) if the firm purchases and exercises a put option:
Exercise price = $.61
Premium = $.02
Spot rate = $.60
Expected spot rate in 30 days = $.56
30-day forward rate = $.62
a. $630,000.
b. $610,000.
c. $600,000.
d. $590,000.
e. $580,000.
5. Assume a U.S.-based subsidiary wants to raise $1,000,000 by issuing a bond denominated in Pakistani rupees (PKR). The current exchange rate of the rupee is $.02. Thus, the MNC needs ____ rupees to obtain the $1,000,000 needed.
a. 50,000,000
b. 20,000
c. 1,000,000
d. none of the above
6. Assume the following information:
U.S. deposit rate for 1 year = 11%
U.S. borrowing rate for 1 year = 12%
Swiss deposit rate for 1 year = 8%
Swiss borrowing rate for 1 year = 10%
Swiss forward rate for 1 year = $.40
Swiss franc spot rate = $.39
Also assume that a U.S. exporter denominates its Swiss exports in Swiss francs and expects to receive SF600,000 in 1 year. Using the information above, what will be the approximate value of these exports in 1 year in U.S. dollars given that the firm executes a forward hedge?
a. $234,000.
b. $238,584.
c. $240,000.
d. $236,127.
9. When an MNC is considering financing a portion of a foreign project within the foreign country, the best method to account for a foreign project's risk is to:
a. derive net present values based on the WACC.
b. adjust the weighted average cost of capital for the risk differential.
c. derive the net present value of the equity investment.
d. none of the above
10. Assume a U.S.-based subsidiary wants to raise $1,000,000 by issuing a bond denominated in Pakistani rupees (PKR). The current exchange rate of the rupee is $.02. Thus, the MNC needs ____ rupees to obtain the $1,000,000 needed.
a. 50,000,000
b. 20,000
c. 1,000,000
d. none of the above
11. To hedge a ____ in a foreign currency, a firm may ____ a currency futures contract for that currency.
a. receivable; purchase
b. payable; sell
c. payable; purchase
d. none of the above
please give good ans it is my final explain answer
Explanation / Answer
Note: I'm getting my answers from an Advanced Macroeconomics textbook, so I apologize for taking a while to do them. Good luck on your final!
1)Spears Co. will receive SF1,000,000 in 30 days. Use the following information to determine the total dollar amount received (after accounting for the option premium) if the firm purchases and exercises a put option:
Exercise price = $.61
Premium = $.02
Spot rate = $.60
Expected spot rate in 30 days = $.56
30-day forward rate = $.62
put option: a contract between two parties to exchange an asset, the underlying, for a specified amount of cash, the strike, by a predetermined future date, the expiry or maturity. One party, the buyer of the put, has the right, but not an obligation, to sell the asset at the strike price by the future date, while the other party, the seller, has the obligation to buy the asset at the strike price if the buyer exercises the option.
a. $630,000.
b. $610,000.
c. $600,000.
d. $590,000.
e. $580,000.
5. Assume a U.S.-based subsidiary wants to raise $1,000,000 by issuing a bond denominated in Pakistani rupees (PKR). The current exchange rate of the rupee is $.02. Thus, the MNC needs ____ rupees to obtain the $1,000,000 needed.
a. 50,000,000
b. 20,000
c. 1,000,000
d. none of the above - you'd need 200,000,000 rupees!
6. Assume the following information:
U.S. deposit rate for 1 year = 11%
U.S. borrowing rate for 1 year = 12%
Swiss deposit rate for 1 year = 8%
Swiss borrowing rate for 1 year = 10%
Swiss forward rate for 1 year = $.40
Swiss franc spot rate = $.39
Also assume that a U.S. exporter denominates its Swiss exports in Swiss francs and expects to receive SF600,000 in 1 year. Using the information above, what will be the approximate value of these exports in 1 year in U.S. dollars given that the firm executes a forward hedge?
a. $234,000.
b. $238,584.
c. $240,000. - what a nice number! haha, your test is too kind.
d. $236,127.
In hedging, the final cash price initially is not known for certain because the final basis is not known until the hedge is converted to a cash sale - so remember that this is an approximation!
9. When an MNC is considering financing a portion of a foreign project within the foreign country, the best method to account for a foreign project's risk is to:
a. derive net present values based on the WACC.
b. adjust the weighted average cost of capital for the risk differential.
c. derive the net present value of the equity investment.
d. none of the above
WACC: A calculation of a firm's cost of capital in which each category of capital is proportionately weighted. All capital sources - common stock, preferred stock, bonds and any other long-term debt - are included in a WACC calculation.
10. Assume a U.S.-based subsidiary wants to raise $1,000,000 by issuing a bond denominated in Pakistani rupees (PKR). The current exchange rate of the rupee is $.02. Thus, the MNC needs ____ rupees to obtain the $1,000,000 needed.
a. 50,000,000
b. 20,000
c. 1,000,000
d. none of the above - you'd need 200,000,000 rupees!
11. To hedge a ____ in a foreign currency, a firm may ____ a currency futures contract for that currency.
a. receivable; purchase
b. payable; sell
c. payable; purchase
d. none of the above
a basic way to look at this is to think - you "purchase" a hedge so you'll "receive" futures
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