User Account

All Pages

Solve the expected spot rate in six months

Assignment Help Financial Accounting
Reference no: EM132719368

Assume that you provide financial advice to Minelli Enterprises Limited. The company's management has come to you for guidance over a foreign exchange transaction. The company, based in New Zealand, has sold GBP$ 4,500,000 worth of equipment to a customer in Great Britain. The payment has been deferred for six (06) months.

The following information has been provided:

Spot exchange rate = NZD 1.9639/GBP

Six-month forward rate = NZD 1.9613/GBP

New Zealand lending rate = 3.12% p.a.

New Zealand deposit rate = 2.22% p.a.

Great Britain lending rate = 1.22% p.a.

Great Britain deposit rate = 0.86% p.a.

Risk free rate in New Zealand = 0.68% p.a.

Risk free rate in Great Britain = 0.92% p.a.

Required:

Problem 1: Calculate the expected spot rate in 6 months, assuming the Interest Rate Parity holds between the two countries. (Round off calculations to four decimals.)

Problem 2: Calculate the expected value of the sale in New Zealand dollars using the expected spot rate calculated in1 above, assuming they do not hedge. Based on your result, should the company hedge? Why?

Problem 3: Calculate the value of the proceeds from the sale if the company enters a forward rate agreement.

Problem 4: Assuming the company entered a forward market hedge contract, calculate the foreign exchange loss or gain that would be recorded in the books of accounts if the transaction had been recorded in the books at the spot rate at the time of purchase.

Problem 5: Explain and calculate the net amount receivable by Minelli Enterprises Limited Ltd if money market hedge is used. (Show workings.)

Problem 6: Based on your calculations above, which alternative would you recommend and why?

Reference no: EM132719368

Questions Cloud

Prepare a consolidated balance sheet working paper : Prepare a consolidated balance sheet working paper, assuming Microtech is the acquiring company and issues $200 million in stock for all of the stock.
Why interest rate swaps are beneficial for parties involved : Why interest rate swaps are beneficial for parties involved? Two issues must be agreed upon. What are they?
Determine McMahon free cash flow for both years : Seventy percent of the net cash flow used for investing activities was for the purchase of property, plant, and equipment. Determine McMahon free cash flow
What is the compound amount : What is the compound amount (future value) if $36,000 is invested at 12% compounded semi-annually for 7 years?
Solve the expected spot rate in six months : Solve the expected spot rate in 6 months, assuming the Interest Rate Parity holds between the two countries. (Round off calculations to four decimals.)
The information technology department : Privacy is a sticky issue for the Information Technology department. The other side of this is how organizations handle data about their customers.
Find total amount of revenue tang will recognize for project : Tang Construction Ltd. builds custom homes. The company recently bid on a project known as Butchart Street Developments (BSD). Tang's management has provided.
Explain the below regulation : This should include the market failure(s) that this regulation is addressing, the deficiencies of the existing regulation, the aims and objectives of the regula
Expected rate of return on stock-rambo enterprises : Rambo Enterprises, Inc. stock has a beta of 1.12. The risk-free rate of return is 2.46 percent and the market risk premium is 7.26 percent.

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