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    Forward Market Hedge Answer: e Diff: T R

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    Kaye Javellana
    The U.S. firm bought $200,000 worth of television tubes from an English manufacturer for delivery in 60 days with payment in 90 days. Due to currency fluctuations, the firm entered the 90-day forward market to hedge currency risk, buying pounds at £0.60/dollar. The spot rate in 90 days was £0.55/dollar. The firm saved $19,696.97 by hedging in the forward market.

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    Forward Market Hedge Answer: e Diff: T R

    Uploaded by

    Kaye Javellana
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    The U.S. firm bought $200,000 worth of television tubes from an English manufacturer for delivery in 60 days with payment in 90 days. Due to currency fluctuations, the firm entered the 90-day forward market to hedge currency risk, buying pounds at £0.60/dollar. The spot rate in 90 days was £0.55/dollar. The firm saved $19,696.97 by hedging in the forward market.

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    The U.S. firm bought $200,000 worth of television tubes from an English manufacturer for delivery in 60 days with payment in 90 days. Due to currency fluctuations, the firm entered the 90-day forward market to hedge currency risk, buying pounds at £0.60/dollar. The spot rate in 90 days was £0.55/dollar. The firm saved $19,696.97 by hedging in the forward market.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    30 views1 page

    Forward Market Hedge Answer: e Diff: T R

    Uploaded by

    Kaye Javellana
    The U.S. firm bought $200,000 worth of television tubes from an English manufacturer for delivery in 60 days with payment in 90 days. Due to currency fluctuations, the firm entered the 90-day forward market to hedge currency risk, buying pounds at £0.60/dollar. The spot rate in 90 days was £0.55/dollar. The firm saved $19,696.97 by hedging in the forward market.

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    Forward market hedge Answer: e Diff: T R

    43. Suppose a U.S. firm buys $200,000 worth of television tubes from an English
    manufacturer for delivery in 60 days with payment to be made in 90 days (30
    days after the goods are received). The rising U.S. deficit has caused the
    dollar to depreciate against the pound recently. The current exchange rate
    is 0.65 pound per U.S. dollar. The 90-day forward rate is £0.60/dollar.
    The firm goes into the forward market today and buys enough British pounds
    at the 90-day forward rate to completely cover its trade obligation.
    Assume the spot rate in 90 days is 0.55 British pound per U.S. dollar. How
    much in U.S. dollars did the firm save by eliminating its foreign exchange
    currency risk with its forward market hedge?

    a. $ 4,750.00
    b. $ 9,495.50
    c. $ 0
    d. $14,888.25
    e. $19,696.97

    Exchange rates and operating profit Answer: b Diff: T


    44. Topeka Foods is a leading producer of orange juice. The company is based
    in the United States but it produces its orange juice in Mexico for sale in
    the United States and Japan. It costs the company 15 pesos to produce a
    liter of orange juice in Mexico. Each liter of orange juice sells for
    $2.50 in the United States and for 400 yen in Japan. Profits from Japan are
    then converted back to U.S. dollars. Assume that exchange rates are 10
    pesos per dollar and 120 yen per dollar. What would the company’s total
    dollar profit be if it sold 10 million liters in the United States and
    8 million liters in Japan?

    a. $18.0 million
    b. $24.7 million
    c. $28.3 million
    d. $50.9 million
    e. $91.0 million

    Interest rate parity Answer: b Diff: T


    45. Currently in the spot market $1 U.S. = 116.6 Japanese yen, and in the
    1-year forward market, $1 U.S. = 112.8 Japanese yen. In the spot market
    1-year, risk-free U.S. securities yield 5.5 percent. Assuming that
    interest rate parity holds, what is the interest rate on 1-year, risk-free
    Japanese securities? (Hint: If you cannot get one of the following
    answers, increase the number of decimals in your calculations.)

    a. 9.05%
    b. 2.06%
    c. 49.95%
    d. 5.50%
    e. 3.37%

    Chapter 19 - Page 13

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