User Account

All Pages

Discuss the hedging method the british firm may use

Assignment Help Financial Accounting
Reference no: EM133004692

Poppe plc has contracted to pay EUR 2 million in 4 months to its Italian supplier. Assume today is July 2021. These rates are available:

Spot rate: Great British Pounds (GBP) 1 = Bid EUR 1.1400 and Offer EUR1.1480 EUR/GBP futures = GBP 0.86500 per EUR

Poppe's banker provided some estimates in 4 months:
Spot rate: GBP1 = Bid EUR 1.3000 and Offer EUR 1.3080
EUR/GBP futures = GBP 0.76000 per EUR

The specifications for the EUR/GBP futures contract are as follows: Contract Size : EUR 125,000 Minimum fluctuation: 1 tick (0.001 pence per EUR) Tick value : GBP1.25

Required:

Problem a) Explain the futures hedge to be adopted by the British firm. Calculate the number of futures contracts required.

Problem b) Compute the import payment in sterling in 4 months. Assume the banker's estimates came true.

Problem c) Compute the gain/loss in the spot market and comment on the results.

Problem d) Option contracts are available for the EUR/GBP currency pair. Critically discuss the choice of option based on type, strike and expiry date to hedge the firm's currency risk.

Problem e) Assume the Italian exporter has a subsidiary in Britain, and there is an impending short term loan from the headquarter to its subsidiary. Discuss the hedging method the British firm may use to hedge its currency risk

Reference no: EM133004692

Questions Cloud

What income do sweets and tammy recognize : On July 10, Sweets makes a $10,000 cash distribution to Tammy. What income do Sweets and Tammy recognize as a result of the distribution?
Compute the required return for an investment : Target stock is currently selling for $175.40 a share. It is expected to reach a price of $188.20 a year from now. You expect the company to pay a dividend of $
Which at least one of the entries will include a : Nick paid his telephone bill, and he also bought equipment on credit. For the three transactions, at least one of the entries will include a
Design a high-level plan to gather data : Design a high-level plan to gather data from your employees (i.e., observations, discussions, focus groups, and surveys). Summarize how you will gather data
Discuss the hedging method the british firm may use : There is an impending short term loan from the headquarter to its subsidiary. Discuss the hedging method the British firm may use to hedge its currency risk
Calculate the cash flow from operating activities : Calculate the cash flow from operating, investing and financing activities, and the net change in cash for Bronze Corporation
Calculate the theoretical price of call with binomial model : 1) Based on today's quote for ABC stock and option with 6 months to expiration:
Explain how a 10 year interest rate swap : For this question you may use diagrams and illustrative data where appropriate.
Prepare a statement of changes in Equity for the year ended : There were 50,000 non-cumulative preferred shares with an ending balance of $250,000. Prepare a statement of changes in Equity for the year ended

Reviews

Write a Review

Financial Accounting Questions & Answers

  Financial statement analysis and preparation

Financial Statement Analysis and Preparation

  Shareholder of a company

Describe the ways that a person can become a shareholder of a company. Why Wal-Mart would split its stock?

  Financial and accounting principles

An understanding of financial and accounting principles can be a valuable tool for managers. While not all managers will find themselves calculating financial ratios or preparing annual financial data.

  Prepare a statement of cash flow using the direct method

Prepare a Statement of Cash Flow using the Direct Method and Prepare the Operations section of the Statement of Cash Flow using the Indirect Method.

  Financial accounting assignment

This assignment has one case study and two question apart from case study. Questions related to document Liquidation question and Company financial statements question - Torquay Limited

  Prepare general journal entries for goela

Prepare general journal entries for Goela Ltd

  Principles of financial accounting

Prepare the journal entry to record the acquisition of the assets.

  Prepare general journal entries to record the transactions

Prepare general journal entries to record the transactions, assuming use of the periodic inventory system

  Global reporting initiative

Compare the view espoused by the economist Milton Friedman about the social responsibilities of business with the views express by Stigler.

  Explain the iasb conceptual frameworks

Explain the IASB Conceptual Framework's perspective of users and their decisions.

  Determine the company''s financial statements

T he focus of the report is to determine the extent to which you are comfortable relying on the financial statements as presented by management .

  Computation of free cash flow

Computation of Free Cash Flow

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd