You will expect to receive if you use currency put option

Assignment Help Financial Management

Reference no: EM131566027

You believe that IRP presently exists. The nominal annual interest rate in Mexico is 13%. The nominal annual interest rate in the U.S. is 4%. You expect that annual inflation will be about 4% in Mexico and 4.5% in the U.S. The spot rate of the Mexican peso is $.10. Put options on pesos are available with a one-year expiration date, an exercise price of $.1008, and a premium of $0.014 per unit.

You will receive 1 million pesos in one year.

a. Determine the amount of dollars that you will receive if you use a forward hedge.

b. Determine the expected amount of dollars that you will receive if you do not hedge and believe in purchasing power parity (PPP).

c. Determine the amount of dollars that you will expect to receive if you use a currency put option hedge. Account for the premium you would pay on the put option.

Reference no: EM131566027

Questions Cloud

Creating college investment fund : Mr. Blochirt is creating college investment fund for his daughter. He will put in $8,000 per year for next 18 years and expects to earn 6% annual rate of return

What is future value : The interest rate is 11 percent. What is the future value?

Using forward hedge or money market hedge : It wishes to hedge this payables position. Would it be better off using a forward hedge or a money market hedge?

How much return will his investment earn during time period : How much return will his investment earn during this time period?

You will expect to receive if you use currency put option : Determine the amount of dollars that you will expect to receive if you use a currency put option hedge.

What is its net credit position : What is its net credit position? Note that a negative position implies receivables exceed payables.

What is effective rate of interest : what is the effective rate of interest on a $880,000 loan where a 13% compensating balance is required?

What is the probability of an actual return : Assume a Normal distribution with an average return of 10% and a standard deviation of 5%. What is the probability of an actual return of (a) more than 15%.

How much money will analog need to borrow : How much money will Analog need to borrow in order to end up with $880,000 spendable cash?

User Account

All Pages