FIN415 Risk Management Problem, Set II

FIN415 Risk Management Problem, Set II - $20,000 to Canada...

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Risk Management Problem 1 Risk Management Problem, Set II FIN/415 Country Contract $/Foreign Currency
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Risk Management Problem 2 Canada—dollar Spot 0.8437 30-day 0.8417 90-day 0.8395 Japan—yen Spot 0.004684 30-day 0.004717 90-day 0.004781 Switzerland—franc Spot 0.5139 30-day
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Risk Management Problem 3 0.5169 90-day 0.5315 171. ( Spot exchange rates ) An American business needs to pay (a) 10,000 Canadian dollars, (b) 2 million yen, and (c) 50,000 Swiss francs to businesses abroad. What are the dollar payments to the respective countries? (a) 10,000 Canadian dollars 10,000 x 0.8437 = $8,437.00 (b) 2 million Yen 2,000,000 x 0.00468 = $9,368.00 ( c) 50,000 Swiss francs 50,000 x 0.5139 = $25,695.00 172. ( Spot exchange rates ) An American business pays $10,000, $15,000, and $20,000 to suppliers in, respectively, Japan, Switzerland, and Canada. How much, in local currencies, do the suppliers receive? (a) $10,000 to Japan
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Risk Management Problem 4 10,000 x 1/.004684 10,000 x 213.493 = ¥2,134,92 7.41 (b) $15,000 to Switzerlan d 15,000 x 1/.5139 15,000 x 1.9459 = Fr. 29,188.56 ( c)
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Unformatted text preview: $20,000 to Canada 20,000 x 1/.8437 20,000 x 1.18526 = $23,705.1 1 Canadian 175. ( Exchange rate arbitrage ) You own $10,000. The dollar rate in Tokyo is 216.6743. The yen rate in New York is given in the preceding table. Are arbitrage profits possible? Set up an arbitrage scheme with your capital. What is the gain (loss) in dollars? The (indirect) New York rate 1 / 0.00468 = 213.4927412 ¥/$ Assuming there are no transaction costs, the rate between Tokyo and New York are out of line. Therefore, arbitrage profits are possible. Yen is cheaper in Tokyo. Buy Yen for $10,000 10,000 x 216.674 = ¥2,166,743.00 Sell the Yen in New York at the current rate. 2,166,743 x 0.00468 = $10,149.02 Gain is: 10,149.02-10,000 = $149.02 Risk Management Problem 5 Reference Keown, A. J., Martin, J. D., Petty, J. W. (2007). Foundations of finance: The logic and practice of financial management . Upper Saddle River, NJ: Pearson Prentice Hall....
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This note was uploaded on 08/22/2011 for the course BUS 415 taught by Professor Barnes during the Spring '11 term at Coastal Carolina University.

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FIN415 Risk Management Problem, Set II - $20,000 to Canada...

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