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Moodle 3C Answer

The document provides details on two exercises involving foreign exchange risk management. Exercise 1 involves a company with GBP receivables and analyzes using a forward contract, call option, and uncovered position to obtain USD. Exercise 2 involves a company with GBP payables and analyzes using a forward contract, put option, futures contract, and uncovered position to obtain USD.

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41 views5 pages

Moodle 3C Answer

The document provides details on two exercises involving foreign exchange risk management. Exercise 1 involves a company with GBP receivables and analyzes using a forward contract, call option, and uncovered position to obtain USD. Exercise 2 involves a company with GBP payables and analyzes using a forward contract, put option, futures contract, and uncovered position to obtain USD.

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Phát Gaming
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We take content rights seriously. If you suspect this is your content, claim it here.
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Exercise 1:

- 3-month A/P in pounds: £10,000,000


- S0 (GBP/USD) = 1.5539 - 1.5890
- Rusd (Rd) = 2.0% - 2.5%
- Rgbp (Rf) = 1.5% - 1.8%
- Call option: Strike: 1.5930
- Premium: 1%
- Cost of capital: 11%
- S1 (GBP/USD) = 1.5333 - 1.6290
- 30% forward = £10,000,000 x 30% = £3,000,000
- 40% call option = £10,000,000 x 40% = £4,000,000
- 30% uncovered = £10,000,000 x 30% = £3,000,000

Forward contract:

- 3-month forward ask:

Fask = Sask x [(1 + Rd, ask x (d / 360)) / (1 + Rf, bid x (d / 360))]

= 1.5890 x [1 + (2.5% x (90 / 360)) / (1 + [1.5% x (90 / 360))] = 1.5930

 Amount of USD when using forward contract:

= £3,000,000 x $1.5930 = $4,779,000 (1) Commented [PVNL1]: correct

Call option:

- Call option: Spot > Strike (1.6290 > 1.5930)

 Call will be exercised.

USD Cost = Strike Rate x Underlying Amt + Premium


 Amount of USD when using call option:

= 1.5930 x £4,000,000 + 1% x £4,000,000 x 1.5890 x (1+11%*90/360)

= $6,442,551.6 (2)

6,437,308

Uncovered:

 Amount of USD uncovered:

= £3,000,000 x 1.6290 = $4,887,000 (3) Commented [PVNL2]: correct

Total amount of USD ImportCo has to pay:

 The amount of USD cost:

= (1) + (2) + (3)

= $4,779,000 + $6,442,551.6 6,437,308 + $4,887,000

= $16,108,551.6

16,103,308

Exercise 2:

- 95-day A/R in pounds: £30,000,000


- S0 (GBP/USD) = 1.2980 - 1.3000
- Rgbp (Rf) = 2% - 3% pa
- Rusd (Rd) = 1.5% - 2.5% pa
- Put option: Strike: $1.4850
- Premium: 1.5%
- Future: F0 = $1.3680
- Future: F1 = $1.310
- S1 (GBP/USD) = 1.3130 - 1.3250
- 25% forward = £30,000,000 x 25% = £7,500,000
- 25% put option = £30,000,000 x 25% = £7,500,000
- 30% future = £30,000,000 x 30% = £9,000,000
- 20% uncovered = £30,000,000 x 20% = £6,000,000

Forward contract:

- 95-day forward bid:

Fbid = Sbid x [(1 + Rd, bid x (d / 360)) / (1 + Rf, offer x (d / 360))]

= 1.2980 x [1 + (1.5% x (95 / 360)) / (1 + [3% x (95 / 360))] = 1.2929

 Amount of USD when using forward contract:

= £7,500,000 x $1.2929 = $9,696,750 (1) Commented [PVNL3]: correct vì làm tròn Fbid

Put Option:

- Put option: Spot < Strike (1.3130 < 1.4850)

 Put option will be exercised.

Cost = Strike Rate x Underlying Amt – Premium

 Amount of USD when using put option:

= 1.4850 x £7,500,000 - 1.5% x £7,500,000 x 1.2980


= $10,991,475 (2) Commented [PVNL4]: correct

Future Contract:

Dayton uses a sell futures contract to hedge the short position.

- Future Gain/Loss:

 G/L = - [(F1 - F0)] x Q

= - [(1.310 - 1.3680)] x £9,000,000

= $522,000 (gain) Commented [PVNL5]: correct

They gain $522,000 from the futures contract.

 Amount of USD when using future contract:

= £9,000,000 x 1.3130

= $11,817,000

 Total amount USD when using future contract:

= 11,817,000 + 522,000 = $12,339,000 (3) Commented [PVNL6]: correct

Uncovered

 Amount of USD uncovered:

= £6,000,000 x 1.3130 = $7,878,000 (4)

Total amount USD Dayton will receive:

 The amount of USD cost:

= (1) + (2) + (3) + (4)


= $9,696,750 + $10,991,475 + $12,339,000 + $7,878,000

= $40,905,225 Commented [PVNL7]: correct

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