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

A company exports 37000 products to chile nbspunder an

A company exports 37,000 products to Chile  under an import license that expires in five years. In Chile, the products are sold for the Chile peso equivalent of $45. Direct shipping costs in the United States and indirec ...

What is the relation between a companys operating risk and

What is the relation between a company's operating risk and its optimal capital structure? What is meant by the pecking order theory of capital structure? What are the implications of the Modigliani-Miller theory of capi ...

What ethical considerations might enter into decisions that

What ethical considerations might enter into decisions that result in cash flow and stock price effects that are valued lower than they might otherwise have been?

1 what part of the federal fair housing act is applicable

1. What part of the federal Fair Housing Act is applicable to an apartment project? 2. Define net lease. 3. Why does shopping center management promote shopper-attraction activities? 4. How does a shopping center utilize ...

Choose a company that you would like to analyze and obtain

Choose a company that you would like to analyze and obtain its financial statements. Now, select another firm from the same industry and obtain its financial data from the Internet. Perform a complete ratio analysis on e ...

Read and study the following experimental designs for eacha

Read and study the following experimental designs. For each: a. Identify the number of factors and the number of levels within each of the factors. Identify whether each of the factors is between participants or repeated ...

Assignmentdirections answer the following questions on a

Assignment Directions: Answer the following questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your assignment using the assign ...

Why is the value of a futures or forward contract at the

Why is the value of a futures or forward contract at the time it is purchased equal to zero? Contrast this with the value of the corresponding spot commodity ? Identify and provide a brief explanation of the factors that ...

Toynbspcorp produces and sells pinball machines its average

Toy Corp. produces and sells pinball machines. Its average selling price is currently $5,400 per game. Based on a review of its projected financial statements, the company's variable costs are $2,800 per unit sold and to ...

Carlinek is a polish company based in poznan which retails

Carlinek is a Polish company, based in Poznan, which retails Aqua-Floor, a well-known water-resistant laminated floor covering. The company needs to forecast the demand of this product, by using historical data on the sa ...

  • 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

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

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