Answers
For forward contract, we have an obligation to exercise but for call option, we can check whether the call option rate is favourable when compared with spot rate and the decision is taken accordingly
| Euros | Spot Rate | USD today | ||||
| Liablitiy for Kansan Corp | 5,900,000 | 0.9 | 6,555,556 | |||
| a. Suppose that in one year the spot exchange rate is 0.85 €/$. | ||||||
| Description | Euros | 1 year Forward Rate | USD today | Actual Spot rate | Dollar using Spot rate after 1 year | Net Dollar cost |
| Strategy 1 | 5,900,000 | 0.89 | 6,629,213 | 0.85 | 6,941,176.47 | 6,629,213.48 |
| Strategy 2 | 5,900,000 | 0.88 | 6,704,545 | 0.85 | 6,941,176.47 | |
| Option Premium | 109,000 | |||||
| Total Liability in Dollars | 5,900,000 | 0.87 | 6,813,545 | 6,813,545 | ||
In Stragery 1, the net dollar cost will be the forward rate
In Strategy 2, since the actual spot rate after 1 year is not favourable hence we will exercise the call option but we have to pay call option premium+agreed spot rate after 1 year. Hence the total cost will be the 1 year call option rate+option premium
| b. Suppose that in one year the spot exchange rate is 0.95 €/$. | ||||||
| Description | Euros | 1 year Forward Rate | USD today | Actual Spot rate | Dollar using Spot rate after 1 year | Net Dollar cost |
| Strategy 1 | 5,900,000 | 0.89 | 6,629,213 | 0.95 | 6,210,526.32 | 6,629,213.48 |
| Strategy 2 | 5,900,000 | 0.88 | 6,704,545 | 0.95 | 6,210,526.32 | |
| Option Premium | 109,000 | 109,000 | ||||
| Total Liability in Dollars | 5,900,000 | 6,813,545 | 0.93 | 6,319,526.32 | 6,319,526.32 | |
In Stragery 1, the net dollar cost will be the forward rate
In Strategy 2, since the actual spot rate after 1 year is favourable hence we will not exercise the call option but we have to pay call option premium. Hence the total cost will be the 1 year actual spot rate+option premium
.Similar Solved Questions
1 answer
2. Variation NL For Country A the dennand and supply for food are given by Qda-520-200P and Qsa =-80 + 100P. respectively. Analogously, Qdb-900-300P and Qsb-600P are the curves for Country B. Usi...
2. Variation NL For Country A the dennand and supply for food are given by Qda-520-200P and Qsa =-80 + 100P. respectively. Analogously, Qdb-900-300P and Qsb-600P are the curves for Country B. Using this information answer the following questions, keeping you answers as precise as possible either by ...
1 answer
We were then supposed to print out the fruit_color_lengthplanttype in that format
Using pythonI have three lists.plant = [apples, peppers, zucchini]color = [red, yellow, green]planttype= [fruit, vegetable, vegetable].We were then supposed to print out the fruit_color_lengthplanttype in that format, where lengthplanttype is the length of the individual words in that list...
1 answer
1. A 4-bit binary number is applied to a circuit on four lines D, C, B,...
1. A 4-bit binary number is applied to a circuit on four lines D, C, B, and A The circuit has a single output, F, which is true if the number is in the range 3 to 12, inclusive. Draw a truth table for this problem, then plot on a K-Map and obtain a simplified expression for F in terms of the inputs....
1 answer
009 (part 1 of 6) 10.0 points A force F is applied to a conducting rod...
009 (part 1 of 6) 10.0 points A force F is applied to a conducting rod so that the rod slides with constant speed 8.4 m/s over a frictionless pair of parallel con- ducting rails that are separated by a distance 0.49 m. The rod and rails have negligible resistance, but the rails are connected by a re...
1 answer
Part II - Define the terms listed below. Inhalation Exhalation Inspiratory reserve volume Expiratory reserve volume...
Part II - Define the terms listed below. Inhalation Exhalation Inspiratory reserve volume Expiratory reserve volume Vital capacity Spirometer Forced expiratory volume Respiratory rate Hyperventilation Hypoxia Explain what a peak flow measures. Rales Rhonchi Stridor Pulse Oximetry...
1 answer
Pharoah Company expects to have a cash balance of $101,200 on January 1, 2022. These are...
Pharoah Company expects to have a cash balance of $101,200 on January 1, 2022. These are the relevant monthly budget data for the first two months of 2022. 1. Collections from customers: January $156,200, February $321,200. 2. Payments to suppliers: January $88,000, February $165,000. 3. Wages: Janu...
1 answer
A standard galvanic cell is constructed with Cr3+|Cr2+ and Cd2+|Cd half cell compartments connected by a salt bridge. Which of the following statements are correct? Hint: Refer to a table of standard...
A standard galvanic cell is constructed with Cr3+|Cr2+ and Cd2+|Cd half cell compartments connected by a salt bridge. Which of the following statements are correct? Hint: Refer to a table of standard reduction potentials. (Choose all that apply.) In the external circuit, electrons flow from the Cd2+...
1 answer
Can someone show me how to do this thank you please i inned inneeeed it In...
can someone show me how to do this thank you please i inned inneeeed it In a group of 20 batteries, 3 are dead. You choose 2 batteries at random a) Create a probability model for the number of good batteries you get. b) What's the expected number of good ones you get? c) What's the standard ...
1 answer
On February 3, Easy Repair Service extended an offer of $116,000 for land that had been...
On February 3, Easy Repair Service extended an offer of $116,000 for land that had been priced for sale at $132,000. On February 28, Easy Repair Service accepted the seller's counteroffer of $126,000. On October 23, the land was assessed at a value of $189,000 for property tax purposes. On Janua...
1 answer
A. A plant cell was placed into water that have Ys = 0 MPa. The plant...
a. A plant cell was placed into water that have Ys = 0 MPa. The plant cell’s Ys = -0.8 MPa and Yp = +0.6 MPa. Discuss where water will move and how the cell’s Ys and Yp will change with the movement of water. At equilibrium, what would happen if you add salt to the water? Explain. b. How...
1 answer
The president of Doerman Distributors, Inc., believes that 30% of the firm's orders come from first-time...
The president of Doerman Distributors, Inc., believes that 30% of the firm's orders come from first-time customers. A simpl random sample of 100 orders will be used to estimate the proportion of first-time customers. Use z-table. a. Assume that the president is correct and p = 0.3. What is the s...
1 answer
Discuss your experience with a vulnerable population. Describe the experience and how you felt about it. Do you think yo...
Discuss your experience with a vulnerable population. Describe the experience and how you felt about it. Do you think your feelings will influence the type of care you provide, If so, in what ways?...
1 answer
Which of the following elements has eight valence electrons
Which of the following elements has eight valence electrons? A. argon B. beryllium C. chromium D. oxygen . CAN SOMEONE HELP ME, PLEASEEE :D...
1 answer
How do you find the value of #theta# for which #cos(theta+pi/2)# does not equal #costheta+cos(pi/2)#?
How do you find the value of #theta# for which #cos(theta+pi/2)# does not equal #costheta+cos(pi/2)#?...
1 answer
How do astronomers calculate the expansion of the universe?
How do astronomers calculate the expansion of the universe?...
1 answer
How do you solve the system #x^2+y^2=7# and #y=x-7#?
How do you solve the system #x^2+y^2=7# and #y=x-7#?...