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5 July, 12:09

Your firm is a U. K.-based importer of bicycles. You have placed an order with an italian firm for €1,000,000 worth of bicycles. Payment (in euro) is due in 12 months.

1. Use a money market hedge to redenominate this one-year receivable into a pound-denominated receivable with a one-year maturity.

Contract size Country U. S. $ Equiv. Currency per U. S. $

£ 10,000 Britain (pound) $ 1.9600 £ 0.5102 interest APR rates

12 months forward $ 2.0000 £ 0.5000

€ 10,000 Euro $ 1.5600 € 0.6410 i$ = 1 %

12 months forward $ 1.6000 € 0.6250 i€ = 2 %

SFr. 10,000 Swiss franc $ 0.9200 SFr. 1.0870 i£ = 3 %

12 months forward $ 1.0000 SFr. 1.0000 iSFr. = 4 %

The following were computed without rounding. Select the answer closest to yours.

a. €1,244,212.10

b. €1,225,490.20

c. €1,219,815.78

d. €1,250,000

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Answers (1)
  1. 5 July, 12:26
    0
    A. €1,244,212.10

    Explanation:

    Contract Size Country U. S. $ equiv. Currency per U. S. $

    £ 10,000 Britain (pound) $ 1.9600 £ 0.5102 interest APR

    12 months forward $ 2.0000 £ 0.5000 rates

    € 10,000 Euro $ 1.5600 € 0.6410 i$ = 1 %

    12 months forward $ 1.6000 € 0.6250 i€ = 2 %

    SFr. 10,000 Swiss franc $ 0.9200 SFr. 1.0870 i£ = 3 %

    12 months forward $ 1.0000 SFr. 1.0000 iSFr. = 4 %
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