1. For each of the following examples, identify a position that should be held to hedge the scenario (you only need one).
a. Monita Inc. anticipates receiving 200,000 soles in six months from doing business in Peru.
b. K Corp believes the value of the euro will be extremely stable over the next year.
c. Jay LLC thinks the pound sterling will appreciate over the next three months.
d. Ken Vu has C$100,000 due in payables at the end of the month if services are rendered (the firm performing the services may go out of business).
2. Building on part a) of the previous question, assume that the spot rate of the Sol = $0.30 and the annual forward premium = 5%. The Sol depreciated by 8% over the last six months. If Monita hedged this transaction with a forward contract, what is the USD value of the 5200,000 receivables? What is the implied total gain or loss?
3. Building on part b) of question #1, assume that the spot rate of the euro = $1.10. Using the information below, pick ONE method to profit from the stability of the euro. Please indicate the NAME of your position and the payoff per unit if the euro appreciates by 1% over the course of the year? There are multiple correct answers. You only need to do ONE.
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Strike Price
|
Call Premium
|
Put Premium
|
|
$1.05
|
$0.11
|
$0.03
|
|
$1.10
|
$0.06
|
$0.05
|
|
$1.15
|
$0.02
|
$0.09
|
1. Building on part c) of question #1, assume that the spot rate of the pound = $1.50 and the annual forward discount = -4%. Using this information, pick ONE method to profit from the appreciation of the pound. Please indicate the NAME of your position and the payoff per unit if the pound appreciates by 8% over the course of the three months? There are multiple correct answers. You only need to do ONE.
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Strike Price
|
Call Premium
|
Put Premium
|
|
$1.40
|
$0.12
|
$0.03
|
|
$1.50
|
$0.04
|
$0.07
|
1. Building on part d) of question #1, assume that the spot rate of the C$ = $0.75 and the annual forward discount = -6%. Using this information, pick ONE method to hedge the payables in C$100,000 due at the end of the month. Please indicate the NAME of your position and the cost of the C$100,000 in USD. What if the Canadian Dollar appreciates by 4% over the course of one month? There are multiple correct answers. You only need to do ONE.
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Strike Price
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Call Premium
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Put Premium
|
|
$0.70
|
$0.06
|
$0.01
|
|
$0.80
|
$0.02
|
$0.07
|