Ask Strategic Management Expert

Question: Raytheon exported a Patriot missile defense system to Germany. The system costs EUR 500,000,000, and the German government will be making the payment in one year. The current EUR/USD spot rate and money market interest rates are listed below:

Spot: EUR/USD is 1.3176/77

(read as $1.3176-1.3177 per Euro)

RUSD=2%-2.5%

REUR=3%-3.5%

Raytheon wants to sell its receivables forward. Raytheon's principle commercial bank Citi quotes the following 1-year forward rate: $1.2985-1.3113

Show how the Citi bankers calculated the forward rate for the Raytheon transaction. Would Raytheon trade at 1.2985 (bid rate) or 1.3113 (offer rate)?

Assuming that Raytheon decides to sell EUR 500m forward, what would be the dollar receipts if the spot rate one year from now is EUR/USD 1.3400? What would be the dollar receipts if the spot rate is EUR/USD 1.2200?

Discuss pros and cons of hedging Euro risk for Raytheon.

Question 1: Amber McClain, the currency speculator sells 8 June futures contracts for 500,000 pesos at the closing price of $0.10773/Ps?

a. What is the value of her position at maturity if the ending spot rate is $0.12000/Ps?

b. What is the value of her position at maturity if the ending spot rate is $0.09800/Ps?

c. What is the value of her position at maturity if the ending spot rate is $0.11000/Ps?

Question 2: A U.S. importer that incurs costs in GBP and bills its customers in USD is concerned about the depreciation of USD against GBP due to GBP payables of £10,000,000 in a month. To hedge (protect) the position, the importer decides to use futures markets. Currently GBP contracts (62,500 GBP each) are traded at 1.5290. Spot rate is 1.5310 (i.e., GBP/USD 1.5310). Suppose the importer takes an equal futures position to its cash market position (GBP 10m) at 1.5290. Assume that the futures contract price and spot rates are 1.5995 and 1.6020, respectively, when the hedge is liquidated. What should the unit cost of GBP be for the importer in terms of USD?

Question 3: Christoph Hoffeman of Blade Capital now believes the Swiss franc will appreciate versus the U.S. dollar in the coming three-month period. He has $100,000 to invest. The current spot rate is $0.5820/SF, the three-month forward rate is $0.5640/SF, and he expects the spot rates to reach $0.6250/SF in three months.

a. Calculate Christoph's expected profit assuming a pure spot market speculation strategy.

b. Calculate Christoph's expected profit assuming he buys or sells SF three months forward.

Strategic Management, Management Studies

  • Category:- Strategic Management
  • Reference No.:- M9203338

Have any Question?


Related Questions in Strategic Management

Question - the discussion thread is centered on the

Question - The discussion thread is centered on the resource-based view of the firm as espoused by Jay Barney. In the section on Human Resources in your text, Barney's focus on the correlation between superior financial ...

Please use enterprise rent a car for organizationcreate the

Please use ENTERPRISE RENT A CAR for organization Create the Final Strategic Plan. The Final Strategic Plan contains the elements of all the previous weeks' components and incorporates instructor feedback. The strategic ...

Strategic management assignment - authentic research

Strategic Management Assignment - Authentic Research Portfolio This assignment focuses on your understanding and appreciation of Strategic Management Inputs. You are required to identify a corporation in the Agribusiness ...

Business strategy assignment - business strategy

Business Strategy Assignment - Business Strategy: Telecommunication Sector (UK) Purpose of this assignment - This assignment is designed to develop students' awareness of the different kinds of strategy which could be us ...

Assignment -case - real-world cases wipro and

Assignment - CASE - Real-World Cases: Wipro and MBH Self-service is a very valuable tool. HR departments can use an integrated ERP self-service design to provide employees and consumers with a user-friendly interface for ...

Assessment - blog and learning reflectionsassessment

Assessment - Blog and Learning Reflections Assessment Criteria - Demonstrate regular use of the weekly blog by providing clear cross-referencing between report and at least 8 time-stamped meaningful blog entries THROUGHO ...

Complete a value chain analysis of an organization from ksa

Complete a value chain analysis of an organization from KSA. For this assignment, complete the following: - Explain the concept of value chain. Identify and discuss value chain strategies in your present organization or ...

What is related diversification what is unrelated

What is related diversification? What is unrelated diversification? Provide examples of each and compare and contrast the two types.

Question choose an organization according to the

Question: Choose an organization according to the following: • Current employer • Most recent or former employer • Place of business that you have patronized or have been familiar with over a long period of time. - Avoid ...

Question a rental company owns a building from which it

Question: A rental company owns a building from which it leases out multiple offices. During the year it received the following advance rental payments for one-year leases from separate tenants: $24,000 in June, $36,000 ...

  • 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

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As