Question Details

(Solved) UCD (U. based MNC) will receive 500,000 euros in one year. The spot exchange rate today is $1.30 per euro.


UCD (U.S. based MNC) will receive 500,000 euros in one year. The spot exchange rate today is $1.30 per euro. It observes that


  1. The one-year interest rate for euros is 5%, and the one-year interest rate for U.S. dollars is 2%.
  2. In the option market, there is one-year call option or put option available. Both options have the same exercise price of $1.28 per euro, and a premium of $0.02 per euro. 
  3. In the forward market, the one-year forward rate exhibits a 2% discount from the current spot exchange rate.


How should UCD utilize the forward market to hedge the exchange rate risk for its future receivables? And what shall be the amount received based on this hedging strategy? (Note: UCD can only buy or sell the forward contract at the forward rate available in the forward market described in bullet 3.) (Points : 3.85)

      Buy a one-year forward contract for the amount of 500,000 euros at the forward rate of $1.30. One year later, UCD will fulfill its obligation and receives the amount of $650,000.


      Sell a one-year forward contract for the amount of 500,000 euros at the forward rate of $1.30. One year later, UCD will fulfill its obligation and receives the amount of $650,000.


      Sell a one-year forward contract for the amount of 500,000 euros at the forward rate of $1.274. One year later, UCD will fulfill its obligation and receives the amount of $637,000.


      Buy a one-year forward contract for the amount of 500,000 euros at the forward rate of $1.274. One year later, UCD will fulfill its obligation and receives the amount of $637,000.


 


Solution details:
STATUS
Answered
QUALITY
Approved
ANSWER RATING

This question was answered on: Sep 05, 2019

PRICE: $18

Solution~000200194064.zip (25.37 KB)

Buy this answer for only: $18

This attachment is locked

We have a ready expert answer for this paper which you can use for in-depth understanding, research editing or paraphrasing. You can buy it or order for a fresh, original and plagiarism-free solution (Deadline assured. Flexible pricing. TurnItIn Report provided)

Pay using PayPal (No PayPal account Required) or your credit card . All your purchases are securely protected by .
SiteLock

About this Question

STATUS

Answered

QUALITY

Approved

DATE ANSWERED

Sep 05, 2019

EXPERT

Tutor

ANSWER RATING

GET INSTANT HELP/h4>

We have top-notch tutors who can do your essay/homework for you at a reasonable cost and then you can simply use that essay as a template to build your own arguments.

You can also use these solutions:

  • As a reference for in-depth understanding of the subject.
  • As a source of ideas / reasoning for your own research (if properly referenced)
  • For editing and paraphrasing (check your institution's definition of plagiarism and recommended paraphrase).
This we believe is a better way of understanding a problem and makes use of the efficiency of time of the student.

NEW ASSIGNMENT HELP?

Order New Solution. Quick Turnaround

Click on the button below in order to Order for a New, Original and High-Quality Essay Solutions. New orders are original solutions and precise to your writing instruction requirements. Place a New Order using the button below.

WE GUARANTEE, THAT YOUR PAPER WILL BE WRITTEN FROM SCRATCH AND WITHIN YOUR SET DEADLINE.

Order Now