Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

Problem:

Avalon is the US-based company which exports goods to Switzerland. Avalon anticipates receiving payment on a shipment of goods in 3 months. Since payment will be in Swiss francs, the US Company wants to hedge against a decline in value of Swiss franc over the next 3 months. The US risk free rate is 2% and Swiss risk-free rate is 5%. Suppose that interest rates are expected to remain fixed over the upcoming six (6) months. The current sport rate is $0.5974.

Required:

i. Indicate whether Avalon must employ a long or short forward contract to evade the currency risk.

ii. Compute the no-arbitrage price at which Avalon could enter in a forward contract which expires in 3 months.

iii. It is now 30 days since Avalon entered in the forward contract. The spot rate is $0.55. Interest rates are the same as before. Compute the value of Avalon forward position.

iv. Advise to Avalon under what scenario is it better to employ an option contract as compared to a forward contract and in the above case, would the employ of an option contract more be advantageous.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M99764

Have any Question? 


Related Questions in Basic Finance

Suppose you are comparing two companies that are in the

Suppose you are comparing two companies that are in the same line of business. Company C has an operating cycle of 40 days, and Company D has an operating cycle of 60 days. Company C has a current ratio of 3, and Company ...

1 create an individual or family plan using the guidance

1. Create an individual or family plan using the guidance provided in FEMA's Are You Ready publication ( http://www.fema.gov/areyouready/ ). Did you find any shortfalls in this program? What did you learn by using the pu ...

1 in talking to brad you mentioned the increasing threat of

1. In talking to Brad, you mentioned the increasing threat of identity theft. Brad seems concerned and after asking him several questions, you determine the following: a. For convenience, Brad has his driver's license nu ...

1 what is an estoppel why is it used2 what is meant by loss

1. What is an estoppel? Why is it used? 2. What is meant by "loss to lease"? Explain. 3. What are (a) pass through expenses, (b) recoverable expenses, and (c) common area expenses? Give examples of each.

Charlie is a currency trader and has in inventory 125000

Charlie is a currency trader and has in inventory 125000 Euros that he purchased for $1.17 per Euro. The Euro is now trading at $1.40. What is Charlie's profit or loss on this currency trade? Place your answer in numbers ...

1 why does the inverse relationship between the inflation

1. Why does the inverse relationship between the inflation rate and the unemployment rate on the Phillips curve hold only in the short run? In the long run, what happens when the actual inflation rate differs from the ex ...

Find data to decide whether to open a store-you have been

Find data to decide whether to open a store:- You have been asked to determine the feasibility of opening a frozen yogurt store in Greenville, North Carolina. Answer the following questions, using the latest figures avai ...

1 present alternative arguments about saving jobs looking

1. Present alternative arguments about saving jobs, looking at how saving jobs in one industry might eventually hurt another industry. 2. Based on your knowledge of trade theory, discuss the usefulness of limiting textil ...

Question 1 ipo costswhen microsoft went public the company

Question 1. IPO Costs When Microsoft went public, the company sold 2 million new shares (the primary issue). In addition, existing shareholders sold .8 million shares (the secondary issue) and kept 21.1 million shares. T ...

What is meant by the term prevailing torque what do we

What is meant by the term prevailing torque? What do we mean by the terms initial preload and residual preload? Why do they differ? What limits the usefulness of the so-called, long-form torque-preload equation? Explain ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen