User Account

All Pages

Discuss the risk of staying unhedged

Assignment Help Financial Accounting
Reference no: EM132946849

Question - NATIONAL (UAE)'s trading currency is Dirham (AED). Today, the company XYZ from the UAE placed a US$10,000,000 order to purchase a water purification system from Bruce Co, U.S.A. This order is of significant size compared to the total budget of XYZ.

The delivery term is 4 months, and upon testing and certification, the company will make full payment 2 months later.

Today, RHB Bank (in the UAE) has offered the following quotes:

Spot rate 4.20 UAE / US$

1-month forward rate 4.21 UAE / US$

6-month forward rate 4.22 UAE / US$

1-month UAE deposit rate 2.45% per year

1-month UAE borrowing rate 4.45% per year

6-month UAE deposit rate 2.55% per year

6-month UAE borrowing rate 4.75% per year

1-month US$ deposit rate 3.5% per year

1-month US$ borrowing rate 5.5% per year

6-month US$ deposit rate 3.65% per year

6-month US$ borrowing rate 5.85% per year

1-month at-the-money put option on 1 million USD at 1.5% premium

1-month at-the-money call option on 1 million USD at 1.5% premium

6-month at-the-money put option on 1 million USD at 2% premium

6-month at-the-money call option on 1 million USD at 2% premium

Required - Discuss the risk of staying unhedged. Compare at least three different hedging strategies and recommend which one the company should adopt if the forward rate is a good prediction of the future rate in 6 months. Show your workings clearly. Conclude which strategy is the best if the spot rate in 6 months is 4 UAE/US$.

Reference no: EM132946849

Questions Cloud

Determine the appropriate pension account : Determine the appropriate pension account and its balance to be reported on December 31, 2020 SFP assuming all prior months remittances were made as required
How much will she have in her plan at retirement : Lena is 40 and plans to work to age 65. If she contributes $200 per month, how much will she have in her plan at retirement
How much is the spending variance : Bestman Clothing Company uses direct labor hours method for applying 1 point manufacturing overhead. How much is the spending variance
How many units will be produced in March : Budgeted sales for March are 10.500 units Beginning finished goods inventory in March is budgeted to be 2,100 units. How many units will be produced in March
Discuss the risk of staying unhedged : Discuss the risk of staying unhedged. Compare at least three different hedging strategies and recommend which one the company should adopt
Calculate the break even points for output : Fixed overheads are Br. 12,000 per annum. Calculate the break even points for output and sales and show what profit will result if output is 90% of capacity
How much will his retirement fund be worth when he retires : He will deposit $2000 into this account at the end of each year from now until retirement. How much will his retirement fund be worth when he retires
What is the loss absorption power with respect to Donald : Don, Marion and Jed are liquidating their partnership. When the liquidation begins, what is the loss absorption power with respect to Donald
By what amount must the Land account be increased : The land has appreciated in value to $50 500. On 31/12/17, the land has an appraised value of $51 800. By what amount must the Land account be increased in 2016

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