you are quoted the following rates bid ask spot: 1.151, 1.167 SF/E Forward: 1.21, 1.211 SF/E as an european importer you are buying swiss goods valued at 200,000 SF, how much better off are you using forwards vs spot
Added by Tabitha M.
Step 1
- The spot rate given is 1.151 SF/E (bid) and 1.167 SF/E (ask). As an importer, you would use the ask rate to buy SF. - Cost in Euros (E) using the spot rate: 200,000 SF / 1.167 SF/E = 171,379.52 E Show more…
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Canadian Dollar: Spot and Forward (C$/$) Euro: Spot and forward ($/€) Mid rates Bid Ask Mid rates Bid Ask spot 1.2645 1.2639 1.2651 1.2390 1.2387 1.2393 Forward 3-week 23 27 19 15 3-month 135 128 155 146 7a. How much $100 will cost you in Canadian Dollar and Euro? (Hint: you are buying USD). 7b. What are 3-week and 3-month forward bid and ask rate for Canadian Dollar and Euro? 7c. Based on information above, what are the profit margin for the traders between Canadian Dollar and Euro? (Hint: the bid-offer spread % is the profit margin for dealers; you need to find the cross bid-offer rate between Canadian Dollar and Euro; use American Terms to show cross-rate)
Akash M.
You plan to visit Geneva, Switzerland in three months to attend an international business conference. You expect to incur the total cost of SF 5,000 for lodging, meals, and transportation during your stay. As of today, the spot exchange rate is $0.60/SF and the three-month forward rate is $0.63/SF. You can buy the three-month call option on SF with the exercise rate of $0.64/SF for the premium of $0.05 per SF. Assume that your expected future spot exchange rate is the same as the forward rate. The three-month interest rate is 6 percent per annum in the United States and 4 percent per annum in Switzerland. Required: a. Calculate your expected dollar cost of buying $5,000 if you choose to hedge by a call option on SF. b. Calculate the future dollar cost of meeting this SF obligation if you decide to hedge using a forward contract. c. At what future spot exchange rate will you be indifferent between the forward and option market hedges? d. Illustrate the future dollar cost of meeting the SF payable against the future spot exchange rate under both the options and forward market hedges.
You are going to be paid 500,000 CHF (Swiss francs) in one year, but you would prefer dollars. If you wish to hedge your exchange rate risk on this transaction using a forward market hedge, how many Swiss francs should you borrow (or lend) today to set up your hedge? The exchange rate from one year ago is $1.035 per CHF, the current exchange rate is $0.992 per CHF, and your dollar cost of debt is 5.6%. Represent borrowing as positive numbers, lending as negative numbers
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