What is the expected dollar cost of the forward hedge

Assignment Help Finance Basics
Reference no: EM131122374

The Jennette Corporation, a firm based in Mt. Pleasant, South Carolina, has an account payable with a British firm coming due in 180 days. The payable requires Jennette to pay £200,000.Winthrop Jennette, the firm's founder and CEO, is an astute manager. He has asked his CFO, Artis Montgomery, to advise him on the various options for dealing with the exchange risk inherent in this payable. He wishes to know the expected dollar cost of 
(1) A forward hedge. 
(2) A money market hedge. 
(3) Remaining unhedged. 
The following information is available to Artis. The spot rate of the pound today is $1.50. The current 180-day forward rate of the pound is $1.47. Interest rates are as follows:

1626_d.jpg

a. What is the expected dollar cost of the forward hedge?
b. What is the expected dollar cost of the money market hedge?
c. What is the expected dollar cost of remaining unhedged?
d. Which alternative do you recommend? What are the risks associated with thisrecommendation?  

Reference no: EM131122374

Questions Cloud

What business characteristics would you evaluate : You have been asked to prepare a report that evaluates possible client/server solutions to handle a new customerapplication system for all branch offices. What business characteristics would you evaluate? What technology characteristics would you eva..
What makes demand in healthcare a complicated issue : Healthcare is a commodity that we all utilize. In this section we will discuss healthcare demand and all that it can entail. What makes demand in healthcare a complicated issue, and what are some of the components that may contribute to the level..
Describe an algorithm of the ford-fulkerson type : If the supplies si and the arc flow bounds bij and cij are integer, your algorithm should be guaranteed to find an integer feasible solution (assuming at least one feasible solution exists). Hint: Use the conversion to a max-flow problem of Fig. 3..
European call option with strike price : A stock price is currently $46. Over each of the next 2 6-month periods it is expected to go up by 10% or down by 10%. The risk-free rate is 8% per annum with continuous compounding. What is the value of a 1-year European call option with a strike pr..
What is the expected dollar cost of the forward hedge : What is the expected dollar cost of the forward hedge? What is the expected dollar cost of the money market hedge?c. What is the expected dollar cost of remaining unhedged? Which alternative do you recommend? What are the risks associated with thisre..
Find a shortest path from 1 to all nodes : Find a shortest path from 1 to all nodes using the binary heap method, Dial's algorithm, the D'Esopo-Pape algorithm, the SLF method, and the SLF/LLL method.
How sensitive is the consumer to price : Do you think the hospital needs to complete more marketing research before embarking on the campaign? What advertising media would you suggest to be used during the campaign?
What is the mean profit for the simulation : The management of Madeira Manufacturing Company is considering the introduction of a new product. The fixed cost to begin the production of the product is $37,000. The variable cost for the product is uniformly distributed between $19 and $26 per uni..
A botanical researcher wishes to design a survey : A botanical researcher wishes to design a survey to estimate the number of birch trees in a study area. The study area has been divided into 1000 units or plots.

Reviews

Write a Review

Finance Basics Questions & Answers

  Show how many u.s. dollars crown co. would receive

what financial tool(s) would be the best available for hedging? Show how many U.S. dollars Crown Co. would receive, net of cost, under each of the tools you have just identified.

  Which of the following would make for the greatest increase

A portflio expected return is 12% its standard deviaiton is 20%, and the risk-free rate if 4%. Which of the following would make for the greatest increase in the portfolio's Sharpe ratio?

  Find break-even point in units

ABC Corporation sell for $20 per unit, and the variable cost to produce them is $15. Gateway estimates that the fixed expenses are $80,000.

  Determine intrinsic mva of a company with capital of 200m

determine intrinsic mva of a company with capital of 200m eroic of 9 constant growth of 5 and wacc of

  Which of the various valuation techniques

What is your assessment of the stipulation placed on the acquisition by the Australian government? 3 Which of the various valuation techniques do you find the most and least useful? 4 Do you think the offer is a good one? Should Quillan take it?

  Determine the value of aggie

Aggie has a 35% corporate tax rate. Investors face a 20% tax rate on debt receipts and a 15% rate on equity. Determine the value of Aggie.

  How does safety environment impact the internal and

the final project is a legal study of corporate regulations in key organizational functions and their effects on

  Discounted payback period

Polk Products is considering an investment project with the following cash flows.  Determine  the project's discounted payback period.

  Assure you have just started a mobile store you sell mobile

assure you have just started a mobile store. you sell mobile sets and currencies of airtel vodaphone reliance and bsnl.

  What is the purpose of being so exact with the betas

The Countrywide Corporation in charge of the organization where I work has as of late distributed a report expressing that the levered beta of the area of vitality transportation is 0.471870073 (yes, 9 decimals). They acquired this number by consider..

  Keller construction is considering two new investments

Keller Construction is considering two new investments. Project E calls for the purchase of earthmoving equipment. Project H represents an investment in a hydraulic lift. Keller wishes to use a net present value profile in comparing the projects.

  Calculate the annual debt service

You borrow $75,000 for 30 years at 11% interest compounded annually. The value of the property is $100,000, PGI= $20,000, vacancy rates are 8%, and operating expenses are $81,000.

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!

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