User Account

All Pages

If the fi decides to hedge using options should the fi buy

Assignment Help Finance Basics
Reference no: EM13479373

An FI must make a single payment of 500,000 Swiss francs in six months at the maturity of a CD. The FI's in-house analyst expects the spot price of the franc to remain stable at the current $0.80/Sf. But as a precaution, the analyst is concerned that it could rise as high as $0.85/Sf or fall as low as $0.75/Sf. Because of this uncertainty, the analyst recommends that the FI hedge the CD payment using either options or futures. Six-month call and put options on the Swiss franc with an exercise price of $0.80/Sf are trading at 4 cents and 2 cents per Sf, respectively. A six-month futures contract on the Swiss franc is trading at $0.80/Sf.

a. Should the analysts be worried about the dollar depreciating or appreciating?

b. If the FI decides to hedge using options, should the FI buy put or call options to hedge the CD payment? Why?

c. If futures are used to hedge, should the FI buy or sell Swiss franc futures to hedge the payment? Why?

d. What will be the net payment on the CD if the selected call or put options are used to hedge the payment? Assume the following three scenarios: the spot price in six months will be $0.75, $0.80, or $0.85/Sf. Also assume that the options will be exercised.

e. What will be the net payment if futures had been used to hedge the CD payment? Use the same three scenarios as in part (d).

f. Which method of hedging is preferable after the fact?

Reference no: EM13479373

Questions Cloud

An average collection period of 60 days receivables of : abc inc. sells all its merchandise on credit. it has a profit margin of 4 an average collection period of 60 days
Your family vacation was great but it unfortunately ran a : 1. your family vacation was great but it unfortunately ran a bit over budget. all is not lost. you just received an
Gogle in china harvard business school publishing article : google in china harvard business school publishing article will relate to the concept of the markets at the bottom of
The firm has 20 million share of common outstanding the : valuable incorporateds stock currently sells for 45 per share. the firm has 20 million share of common outstanding.
If the fi decides to hedge using options should the fi buy : an fi must make a single payment of 500000 swiss francs in six months at the maturity of a cd. the fis in-house analyst
What is the cost-effectiveness in terms of dollars per : your non-profit agency has been given 20000 to spend on health initiatives in the developing world. you must spend the
This is a recommendation that i think applies to most cases : for the case the oil industry podolny j. and roberts j. harvard business schoolpublishing product ib15.case analysis
A public project has the following costs and benefits in : a public project has the following costs and benefits in real dollars assume that 6 is the appropriate discount rate
The companys after-tax cost of capital is 140 and the : casey motors recently reported net income of 19 million. the firms tax rate was 40.0 and interest expense was 6

Reviews

Write a Review

Finance Basics Questions & Answers

  An investment offers 5700 per year for 10 years with the

an investment offers 5700 per year for 10 years with the first payment occurring one year from now. if the required

  Fisher effect-u.s and euro inflation and currency rates

Suppose that the U.S and Euro nominal interest rate are equal. Subsequently, the U.S. nominal rate decreases while Euro nominal interest rate remains stable.

  Computation of degree of combined leverage

Computation of Degree of operating leverage and financial leverage & combined leverage and EPS if sales level declined.

  Current assets-comprehensive income-personal allowances

What is Comprehensive Income and give a Journal Entry example to record comprehensive Income? How is it reported?

  What is globals share price in 2013

If Global's P/E ratio and number of shares outstanding remains unchanged, what is Global's share price in 2013?

  Using the list from the back of your textbook for the

using the list from the back of your textbook for the following 6 diagnostic financial performance categories decide

  List and explain the advantages of the flexible exchange

there are several arguments for and against the alternative exchange rate regimes. prepare a 2- to 4-page paper

  Explain why sunk costs should not be included

Explain why sunk costs should not be included in a capital budgeting analysis, but opportunity cots and externalities should be included. Give an example of each.

  What is the bond coupon rate

A 25-year Treasury bond is issued with face value of $1,000, paying interest of $62 per year. If market yields increase shortly after the T-bond is issued, what is the bond's coupon rate?

  Calculate horizon value at the end of year 5

Calculate horizon value at the end of year 5 (round to the nearest dollar). 1. $91 2. $101 3. $95 4. $149 5. none of the above.

  What is the value of this endowment in today dollars

The first $4M will start today; at the end of 5 years, the hospital will also receive a lump sum payment of $18M. Assuming the cost of money is 3%, what is the value of this endowment in today's dollars?

  Determine the net cost of the call premium

Buchanan Corporation is refunding $12 million worth of 10% debt. The corporation's tax rate is 35%. The call premium is 9 percent.

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: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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