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(a) An Australian firm sold a ship to a Swiss firm and gave the Swiss client a choice of paying either AUS10,000 or SF15,000 in nine months.
(i) In the above example, the Australian firm effectively gave the Swiss client a free option to buy up to AUS10,000 using Swiss francs. What is the 'implied' exercise exchange rate?
(ii) If the spot exchange rate turns out to be AUS0.62/SF, which currency do you think the Swiss client will choose to use for payment? What is the value of this free option for the Swiss client?
(iii) What is the best way for the Australian Firm to deal with the exchange exposure? Explain.
(b) Suppose a firm enters into a swap agreement with a swap dealer. Describe the nature of default risk faced by both parties.
(c) Distinguish between the motives that excourage mergers and joint ventures among international firms and mergers and joint ventures among local firms.
You just signed a consulting contract that will pay you $38,000, $52,000, and $85,000 yearly at the end of the next three (3) years, respectively.
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Sometimes market activities have unintended positive or negative effects outside the market's scope. This is called an externality. Assume that you are a policy creator concerned with correcting the effects of gases and particulates emitted by and lo..
Suppose you have worked out a line of credit arrangement that allows you to borrow up to $50 million at any time. The interest rate is .425% each month.
Based on the answer from question three, which asset appears riskiest base on standard deviation - Explain the various that you might take and their implications
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