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Macroeconomics: Principles & Policy
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Chapter 19 / Exercise 2
Macroeconomics: Principles & Policy
Baumol/Blinder
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Chapter 19 / Exercise 2
Macroeconomics: Principles & Policy
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Chapter 08 - Management of Transaction Exposure34. Your firm is an Italian exporter of bicycles. You have sold an order to a Swiss firm for SFr. 2,000,000 worth of bicycles. Payment from the customer (in Swiss francs) is due in 12 months. Detail a strategy using futures contracts that will hedge your exchange rate risk. Have an estimate of how many contracts of what type and maturity. A. Go long 200 12-month Swiss franc futures contracts; and long 125 12-month euro futures contractsB. Go short 200 12-month Swiss franc futures contracts; and short 125 12-month euro futures contractsC. Go long 200 12-month Swiss franc futures contracts; and short 125 12-month euro futures contractsD.Go short 200 12-month Swiss franc futures contracts; and long 125 12-month euro futures contracts.E. None of the aboveSell SFr. 2m (a short position) forward using futures contracts, at the 12-month forward rate of $1.00 / SFr. 1 receive $2,000,000 = SFr. 2,000,000 ×$1.00/SFr. At the 12-month forward rate of $1.60/€. This is worth €1,250,000. Go long euro futures contracts.8-67
Chapter 08 - Management of Transaction Exposure35. Your firm is an Italian importer of bicycles. You have placed an order with a Swiss firm for SFr. 2,000,000 worth of bicycles. Payment (in francs) is due in 12 months. Detail a strategy using futures contracts that will hedge your exchange rate risk. Have an estimate of how many contracts of what type and maturity. A. Go long 200 12-month Swiss franc futures contracts; and long 125 12-month euro futures contractsB. Go short 200 12-month Swiss franc futures contracts; and short 125 12-month euro futures contractsC.Go long 200 12-month Swiss franc futures contracts; and short 125 12-month euro futures contractsD. Go short 200 12-month Swiss franc futures contracts; and long 125 12-month euro futures contracts.E. None of the aboveBuy SFr. 2m (a long position) forward using futures contracts, at the 12-month forward rate of $1.00 / SFr. 1 you must pay $2,000,000 = SFr. 2,000,000 ×$1.00/SFr. at maturity. At the 12-month forward rate of $1.60/€. This will cost €1,250,000. Go short euro futures contracts.8-68
Chapter 08 - Management of Transaction Exposure36. Your firm is a U.K.-based exporter of bicycles. You have sold an order to a French firm for €1,000,000 worth of bicycles. Payment from the French firm (in euro) is due in 12 months. Use a money market hedge to redenominate this one-year receivable into a pound-denominated receivable with a one-year maturity.The following were computed without rounding. Select the answer closest to yours. A.803,721.49B. €800,000C. 780,312.13D. 72,352.94Borrow the present value of €1million; receive Sell for Buy To redenominate a 1-year receivable, you need to calculate the future value = 803,721.49 = 780,312.13 ×1.038-69
Chapter 08 - Management of Transaction Exposure

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