Finance
menmen03
exam.docx1. (Transaction Exposure)Trident — A U.S.-based company, has concluded a sale of telecommunications equipment to Regency (U.K.). A total payment of £2,000,000 is due in 90 days. The following table shows relevant exchange rates and interest rates. To hedge, the company is considering using £2,000,000 put options with the strike of $1.55/£. Comparing against the forward hedge, the break-even spot rate for such options hedge is $------------------- /£ in 90 days. (Keep four decimal numbers/)
|
Assumptions |
|
Value |
|
90-day A/R in pounds |
|
£2,000,000.00 |
|
Spot rate, US$ per pound ($/£) |
|
$1.5610 |
|
90-day forward rate, US$ per pound ($/£) |
|
$1.5620 |
|
3-month U.S. dollar investment rate |
|
3% |
|
3-month U.S. dollar borrowing rate |
|
6% |
|
3-month UK investment interest rate |
|
9% |
|
3-month UK borrowing interest rate |
|
14% |
|
Put options on the British pound: Strike rates, US$/pound ($/£) |
|
|
|
Strike rate ($/£) |
|
$1.55 |
|
Put option premium |
|
6.6% |
|
Strike rate ($/£) |
|
$1.54 |
|
Put option premium |
|
8.4% |
|
Strike rate ($/£) |
|
$1.55 |
|
Call option premium |
|
9.3% |
|
Trident's WACC |
|
6.000% |
|
Expected spot rate in 90 days, US$ per pound ($/£) |
|
$1.5431 |
2. (Transaction Exposure)Trident — A U.S.-based company, has concluded a sale of telecommunications equipment to Regency (U.K.). A total payment of £2,000,000 is due in 90 days. Given the following exchange rates and interest rates, the guaranteed dollar receipt from forward hedge is $---------------- in 90 days. (No decimal numbers).
|
Assumptions |
|
Value |
|
90-day A/R in pounds |
|
£2,000,000.00 |
|
Spot rate, US$ per pound ($/£) |
|
$1.5610 |
|
90-day forward rate, US$ per pound ($/£) |
|
$1.5431 |
|
3-month U.S. dollar investment rate |
|
5% |
|
3-month U.S. dollar borrowing rate |
|
8% |
|
3-month UK investment interest rate |
|
7% |
|
3-month UK borrowing interest rate |
|
9% |
|
Put options on the British pound: Strike rates, US$/pound ($/£) |
|
|
|
Strike rate ($/£) |
|
$1.55 |
|
Put option premium |
|
1.552% |
|
Strike rate ($/£) |
|
$1.54 |
|
Put option premium |
|
1.545% |
|
Strike rate ($/£) |
|
$1.55 |
|
Call option premium |
|
1.51.% |
|
Trident's WACC |
|
13% |
|
Maria Gonzalez's expected spot rate in 90 days, US$ per pound ($/£) |
|
$1.5431 |
3. (Transaction Exposure)Trident — A U.S.-based company, has concluded a sale of telecommunications equipment to Regency (U.K.). A total payment of £2,000,000 is due in 90 days. The following table shows relevant exchange rates and interest rates. To hedge, the company is considering using £2,000,000 put options with the strike of $1.55/£. The minimum net receipt (accounting for the cost) from such options hedge is $----------------- in 90 days. (Keep two decimal numbers/)
|
Assumptions |
|
Value |
|
90-day A/R in pounds |
|
£2,000,000.00 |
|
Spot rate, US$ per pound ($/£) |
|
$1.5610 |
|
90-day forward rate, US$ per pound ($/£) |
|
$1.5613 |
|
3-month U.S. dollar investment rate |
|
4% |
|
3-month U.S. dollar borrowing rate |
|
6% |
|
3-month UK investment interest rate |
|
8% |
|
3-month UK borrowing interest rate |
|
11% |
|
Put options on the British pound: Strike rates, US$/pound ($/£) |
|
|
|
Strike rate ($/£) |
|
$1.55 |
|
Put option premium |
|
3.8% |
|
Strike rate ($/£) |
|
$1.54 |
|
Put option premium |
|
7.6% |
|
Strike rate ($/£) |
|
$1.55 |
|
Call option premium |
|
3.2% |
|
Trident's WACC |
|
11.000% |
|
Expected spot rate in 90 days, US$ per pound ($/£) |
|
$1.5431 |
4. (Futures)You enter to short €125,000 futures delivered in 6 months. The future price is F6($/€)=1.09. If at the maturity the spot rate is $1.14/€, and you position is still alive, then your profit(loss) is $-----------------------.
