Apex Corporation must pay its Japanese supplier 125 million in three months. It is thinking of
buying 20 yen call options (contract size is 6.25 million) at a strike price of $0.00800 in order to
protect against the risk of a rising yen. The premium is 0.
An investment manager hedges a portfolio of Bunds (German government bonds) with a 6month forward contract. The current spot rate is 1.64:$1 and the 180-day forward rate is
1.61:$1. At the end of the 6-month period, the Bunds have risen in value by 3.75 p
Suppose you buy three June PHLX call options with a 90 strike price at a price of 2.3 (/).
What would be your total dollar cost for these calls, ignoring broker fees?
After holding these calls for 60 days, you sell them for 3.8 (/). What is your net
Suppose that at the start and at the end of the year, Bell U.K., the British subsidiary of Bell U.S.,
has current assets of 1 million, fixed assets of 2 million, and current liabilities of 1 million.
Bell has no long term liabilities.
Zapata Auto Parts, the Mexican affiliate of American Diversified, Inc., had the following balance
sheet on January 1:
The exchange rate on January 1 was Mex$ 8,000 = $1.
What is Zapata's FASB 52 peso translation exposure on January 1?
Suppose the ex
On January 10, Volkswagen agrees to import auto parts worth $7 million from the United States.
The parts will be delivered on March 4 and are payable immediately in dollars. VW decides to
hedge its dollar position by entering into IMM futures contracts. T
Rolls-Royce, the British jet engine manufacturer, sells engines to U.S. airlines and buys parts
from U.S. companies. Suppose it has accounts receivable of $1.5 billion and accounts payable of
$740 million. It also borrowed $600 million. The current spot r
A foreign exchange trader assesses the euro exchange rate three months hence as follows:
$1.11 with probability 0.25
$1.13 with probability 0.50
$1.15 with probability 0.25
The 90 day forward rate is $1.12.
Will the trader buy or sell euros forward aga
Citigroup sells a call option on euros (contract size is 500,000) at a premium of $0.04 per euro.
If the exercise price is $0.91 and the spot price of the euro at date of expiration is $0.93, what is
Citigroup's profit (loss) on the call option?
Walt Disney expects to receive a Mex$16 million theatrical fee from Mexico in 90 days. The
current spot rate is $0.1321/Mex$ and the 90-day forward rate is $0.1242/Mex$.
What is Disney's peso transaction exposure associated with this fee?
If the spo
The $: exchange rate is 1 = $0.95, and the /SFr exchange rate is SFr 1 = 0.71. What
is the SFr/$ exchange rate?
Suppose the direct quote for sterling in New York is 1.1110 5. What is the direct quote for
dollars in London?
SFr1 = 0.71 x 0.
Suppose Dow Chemical receives quotes of $0.009369-71 for the yen and $0.03675-6 for the
Taiwan dollar (NT$).
How many U.S. dollars will Dow Chemical receive from the sale of 50 million?
What is the U.S. dollar cost to Dow Chemical of buying 1 billio
Suppose the euro is quoted at 0.7064 80 in London, and the pound sterling is quoted at 1.6244-59
Is there a profitable arbitrage situation? Describe it.
Compute the percentage bid ask spreads on the pound and euro.
1. Suppose that the forward ask price for March 20 on euros is $0.9127 at the same time that the
price of IMM euro futures for delivery on March 20 is $0.9145. How could an arbitrageur profit
from this situation? What will be the arbitrageur's profit per
As a foreign exchange trader at Sumitomo Bank, one of your customers would like a yen quote
on Australian dollars. Current market rates are:
What bid and ask yen cross rates would you quote on
Suppose Credit Suisse quotes spot and 90-day forward rates of $0.7957-60, 8-13.
What are the outright 90-day forward rates that Credit Suisse is quoting?
What is the forward discount or premium associated with buying 90-day Swiss francs?
Suppose Air France receives the following indirect quotes in New York: 0.92 - 3 and 0.63 - 4.
Given these quotes, what range of / bid and ask quotes in Paris will permit arbitrage?
Triangular arbitrage can take place in either of two ways: (1) Conv
Using the data in Exhibit 7.5, calculate the 30 day, 90 day, and 180 day forward discounts for the
Here are the relevant rates for the Canadian dollar:
C$1 = $0.7545
30 day forward:
C$1 = $0.7536
90 day forward:
C$1 = $0.7520
On Monday morning, an investor takes a long position in a pound futures contract that matures
on Wednesday afternoon. The agreed upon price is $1.78 for 62,500. At the close of trading on
Monday, the futures price has risen to $1.79. At Tuesday close, the
On checking the Telerate screen, you see the following exchange rate and interest rate quotes:
a. Can you find an arbitrage opportunity?
What steps must you take to capitalize on it?
What is the profit per $1,000,000 arbitraged?
Write down the formula that is used to calculate the yield to maturity on a 20-year 10%
coupon bond with $1,000 face value that sells for $2,000. Assume yearly coupons.
If there is a decline in interest rates, which would you rather be holding, long
Why is information technology important to accountants?
There are six reasons why IT is important to accountants:
Information technology must be compatible with, and support, the other components of
Accounting professionals often he
a. What is the worst-case NPV? The best-case NPV?
b. Use the worst-, most likely, and best-case NPVs and probabilities of occurrence to find the
projects expected NPV, standard deviation, and coefficient of variation.
We used a spreadsheet model to
Are there any subjective risk factors that should be considered before the final decision is made?
A numerical analysis such as this one may not capture all of the risk factors inherent in the
project. If the project has a potential for bringing on
Shrieves typically adds or subtracts 3 percentage points to the overall cost of capital to adjust for
risk. Should the new furniture line be accepted?
Since the project is judged to have above-average risk, its differential risk-adjusted, or projec
Calculate the after-tax salvage cash flow.
When the project is terminated at the end of year 4, the equipment can be sold for $25,000. But, since it
has been depreciated to a $0 book value, taxes must be paid on the full salvage value. For this pro
Calculate the net cash flows for each year? Based on these cash flows, what are the projects
NPV, IRR, MIRR, and payback?
Do these indicators suggest that the project should be
The net cash flows are:
Estimate the required net operating working capital for each year, and the cash flow due to investments in
net operating working capital.
The project requires a level of net operating working capital in the amount equal to 12% of the next years
Why is it important to view an AIS as a combination of hardware, software, people, data, and
It is best to view an AIS as a combination of hardware, software, people, data, and procedures
because it wouldnt be a system had it not been f