UNIVERSITY OF MANOUBA

HIGHER INSTITUTE OF ACCOUNTING

AND BUSINESS ADMINISTRATION

INTERNATIONAL FINANCE

WORKBOOK

Training Cycle for Accounting Expertise

UNIVERSITY YEAR 2012-2013

Teacher in charge of the course: Mrs. O. Errais

1
 SERIES I: THE SPOT AND FORWARD FOREIGN EXCHANGE MARKETS

Exercise 1
On the French foreign exchange market, the following quotes were noted on September 14:
1EUR = 1.0970 – 1.1005 USD

1) If a German currency trader quotes the euro at 1.0960-1.1015 USD. How would you interpret it?
Do you have this quote?
2) If on the contrary he quotes the euro to you at 1.0970 - 1.0995 USD. What are his intentions?
3) Finally, if he quotes you the euro at 1.0980 - 1.1015 USD. How would you interpret this
quote?

Exercise 2
An Italian bank is tasked by one of its clients to purchase 600,000 USD to settle the
imports of the latter. When the currency trader decides to buy USD, the rates observed on
the foreign exchange market is as follows:
In Rome: USD/EUR = 0.8151-55
In London: GBP/USD = 1.8027-31
GBP/EUR = 1.4688-92
1- What should this currency trader do, knowing that the brokerage and transaction fees amount to 15?
EUR the currency exchange operation.

Exercise 3
On September 14, the following rates are observed on the spot foreign exchange market:
1.0970 - 1.1015
DKK / USD : 0.1475 – 0.1540

A client wants to buy 5 million DKK in exchange for EUR.

Calculate the rate applied to this client that allows the bank to make a profit of 3000 EUR.
of this currency exchange operation.
A client wants to sell 1 million DKK for EUR.
Calculate the rate applied to this client that allows the bank to generate a gain of 3 points.
on this currency exchange operation.

Exercise 4
A currency dealer is tasked with selling one million yen from exports made by a
French company. The 1heMarch, on the day of the transaction, the spot exchange rates are:
100 JPY = 0.9113 - 20 EUR in Paris,
100 JPY = 0.9556 – 63 USD in Tokyo
1 USD = 1.0145 – 51 EUR in Frankfurt.
Transaction costs are estimated at 8 euros per exchange operation.
What is the gain obtained by a trader holding 10, compared to a direct transaction?
millions of yen, if he engages in arbitrage with the dollar.

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Exercise 5
On February 2nd, the following quotes are observed on the spot foreign exchange market:
In Paris: EUR/USD = 1.0981 – 1.1045
To London : GBP/EUR = 1.4300 – 1.4350
1.5680 – 1.5684

1) What type of quotation is it in Paris and London? Why?

What is the exchange rate applied in Paris to a French company with a receivable in USD?
What is the exchange rate applied in Paris to a French company having a debt in USD?
What is the exchange rate applied in London to an English company that has a receivable in USD?
What is the exchange rate in London for a UK company that has a debt in USD?
Is the market in equilibrium?
Is there an arbitrage opportunity? If so, explain its mechanism.
Calculate the arbitrage profit for 1,000,000 USD invested in the operation knowing that
For each currency exchange operation, the operator pays a commission of 0.1%.
A European exporter carrying out export operations to the United States submits to
his bank 500,000 dollars to be credited in euros to his account.
What would be the amount credited to the exporter’s account:
If the bank carries out a direct exchange operation.
If the bank uses the British Pound to carry out this arbitrage operation.
Does the bank have an interest in going through the intermediary of the pound sterling to exchange a
amount of 1250 dollars in euros, if the phone and back office fees involved a
transactions with London amount to 15 euros?

Exercise 6
The spot and forward exchange rates of the dollar against the euro and the pound sterling by
The exchange rates with respect to the dollar are reproduced in the table below:

USD/EUR Deadline GBP/USD

Counting 1.0210 -30 1.5873 -80
1 month 110 -125 3
3 months 200 - 220 -5
6 months 305 -330 75 -62
1 year 380 - 420 104-89

1) Is the USD/EUR forward in contango or backwardation? Is the GBP/USD forward in contango or...
in deportation?
2) Calculate the values of USD/EUR and GBP/USD for the selected maturities.
3) Determine the forward or backward rate of the USD/EUR for 3 months and the GBP/USD for 6 months.

Exercise 7

Let us consider an investor who makes speculative decisions in the foreign exchange market.
term on the basis of its exchange rate forecasts. Suppose that the exchange rate in 3 months
The American dollar against the Canadian dollar is:
1 USD = 1.5274 – 1.5280 CAD

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1- If the speculator anticipates a spot exchange rate in 3 months equal to:
1 USD = 1.5300 – 1.5312 CAD, what decision will he make? Determine the speculation profit.
anticipated if he wants to invest one million dollars.
2 - If after three months, the spot exchange rate in the market is:
1 USD = 1.5284 – 1.5298 CAD, determine the actual profit from this speculative operation.
3 - If the speculator anticipates a spot exchange rate in 3 months equal to:
1 USD = 1.5262 – 1.5267 CAD, what decision will he make? Determine the speculative gain
anticipated if he invests the same amount of dollars.

Exercise 8
On 20/03/N, the buying exchange rate observed on the spot foreign exchange market
100 JPY / USD is 0.9053. The spread in % relative to this quote is 0.13%.
The lender interest rates expressed in % per annum observed on the same date are:
6 months
JPY 13/4
USD 21/2

The interest rate spreads are 1/8 for JPY and 1/4 for USD.

1- Calculate the forward rate of 100 JPY / USD for the 6-month maturity. Deduce the spread from it.
term in % relative to the rate of 100 JPY / USD in 6 months.
2- Calculate the carry or forward rates in % annual relative to the exchange rate of 100 JPY / USD at 6
month. Interpret.
3- On 20/03/N, a bank X quotes 100 JPY/USD at 6 months: 0.9140 - 60.
a- How would you interpret this quote? What are the intentions behind this
bank?
b- Can a currency trader with 1,000,000 USD carry out an arbitrage operation?
profitable? If so, how much would its gain amount to?

EXERCISE 9
An American investor wishes to buy the equivalent of 2 million dollars in yen. He
addresses three competing banks that offer him the following quotes:
Bank A: USD/JPY = 119.89 / 10
Bank B: USD/JPY = 119.79 /90
Bank C: USD/JPY = 120.03 /15
1/ Which bank will the investor choose? Then calculate the amount to be received.
2/ Is there a possible arbitrage between the 3 banks? If so, please detail your answer in
mentioning what type of arbitration it is.
3/ What gain can you make if you have 3 million yen? The same question if you
you have 200,000 dollars.
What do you decide if you are told there is a currency exchange commission of 0.1% for each
currency exchange operation?

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EXERCISE 10
You are an American stockbroker. On 15/05, you have local information.
following:
EUR CHF CAD GBP
Spot spread points 14 8 6 11
3-month swap points 15-9 54-72 36-24 27-40
Spot seller rate 1.4529 0.9070 0.9985 1.9456

A client would like to buy 10 million CHF against EUR on 15/05. Calculate the exchange rate.
what you would apply to achieve a profit of 1000 EUR on this operation.
2/ Another client wishes to sell British pounds in 3 months against Canadian dollars. What
What price would you propose to him?
3/ Without making any calculations, compare the respective levels of the Swiss, Canadian, and...
American. Justify your answer.
4/ Another client with 10 million USD is requesting an arbitration opportunity.
cash. Knowing that the US dollar is worth 1.0023-30 CAD in Canada and 0.6892-96 EUR in
Paris, what arbitration options are available to him? Calculate his potential gain.
5/ A speculator anticipates a rise of the dollar against the euro in 3 months by 27 points - 31
It asks you for a possibility to make a gain on the futures market by speculating.
sum of 2 million USD. What currency exchange operations do you need to carry out?
Calculate the client's profits if their expectations prove to be correct.

EXERCISE 11
On the spot foreign exchange market, on 20/05/N, the following quotes are observed:
In Paris: EUR/USD = 1.2650-1.2665
GBP/EUR= 1.4820-1.4825
GBP/USD = 1.8800 - 1.8810
1/ Assuming that the exchange commissions are zero:
Is there an arbitrage opportunity between the markets in Paris and London? Explain.
b- Describe the operations that an arbitrageur should perform to achieve an arbitrage gain.
knowing that its initial investment is 1,000,000 USD.
c- How much should his initial bet be if he wants to achieve a gain of 2000 USD?
If the commissions are 0.05% in Paris and 0.01% in London per currency exchange transaction:
a- Is arbitration profitable in this case?
b- If yes, deduce the arbitrage gain for 1,000,000 USD invested.

EXERCISE 12
On 30/04, we observe on the New York Forward exchange market, the quotations, at 3 months,
following:
EUR / CHF = 1.5648 – 1.5716
0.8297 – 0.8347
On the same date, we observe on the Forward exchange market of Zurich, the exchange rates, at 3
month, following:

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0.8375 – 0.8410
1.5615 - 1.5630
1- If you are an operator holding a cash surplus of 1 million CHF, what must you
What would you do to achieve the highest arbitrage gain? How much would it amount to?
2- If you are an investor making speculative decisions in the foreign exchange market at
Zurich term, and you anticipate a spot rate in 3 months equal to CAD / CHF:
0.8430 - 0.8445, what decision would you make and what would your anticipated gain be if
Do you have 1 million CAD?

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 SERIES II: HEDGING TECHNIQUES AGAINST RISK OF
CHANGE: FORWARD CONTRACTS, CURRENCY ADVANCES, FOREIGN EXCHANGE OPTIONS,
FUTURES

Exercise 1
At 1erIn January, the following quotations can be observed on the spot market and on the market for
euro currencies

1 GBP = 1.4820-40 USD

The interest rates in % on the dollar for 3 months = 31/4- 33/4.

The interest rates in % on the pound sterling for 3 months = 51/2- 53/4.

Is the dollar at a premium or at a discount compared to the pound sterling in 3 months? What is it?
Who explains this report or this transfer?
2. A currency dealer operating on behalf of an American importing client makes a purchase at
3-month term of 100,000 GBP against dollars.
What would be the amount disbursed by this American client if the broker desiresachieve
a gain of 100 USD?
3. Another bank in the market shows the swap points for the GBP/USD quote.
following: 6-8.
What are the intentions as well as the expectations of this bank?

Exercise 2
On May 15, the quotes observed in the spot foreign exchange market in Frankfurt are:
1 USD = 0.9840 - 57 EUR
1 GBP = 1.7338 – 60 EUR
1 CHF = 0.7227 – 35 EUR.
The 6-month interest rate on the Swiss money market is: 53/4% - 57/8 %
The 6-month interest rate on the American money market is: 76/8% - 77/8 %
The 6-month interest rate in the English money market is: 83/8% - 84/8%.
1-Calculate the forward or backward rates at 6 months of the dollar against the pound and of the dollar against
against the Swiss franc.
Calculate the interest rates on the euro for 6 months that should prevail in the German market.
Knowing that the 6-month exchange rate of the dollar against the euro is: 0.9772 - 0.9801.
The financial manager of a German company wishes to sell in 6 months.
local foreign exchange market, the product of an export amount of 250,000 CHF. Calculate the
amount that this company will receive in 6 months considering the transaction fees on the
The Frankfurt foreign exchange market amounts to 55 EUR per transaction.
The manager reports the following quotes on the same day, namely May 15,
Swiss foreign exchange market :
1 EUR = 1.3830 – 54 CHF
1 GBP = 2.3920 – 50 CHF
1 USD = 1.3641 – 57 CHF.

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He decides to carry out arbitrage operations by buying and selling currencies on the spot in
using its excess cash amounting to 10,000 CHF. Describe the arbitrage operation.
who provides the highest gain and calculate that gain.

Exercise 3
On 1/06/N, the American company 'Vega' exports goods to Switzerland for a
value of 1,000,000 EUR. Vega generally grants its clients the following conditions: 50%
at 90 days and 50% at 180 days.
The internal rate of return of the company is 15% per year.
On 01/06/N, the following quotes are observed in the markets:
spot foreign exchange market: CHF / EUR = 0.6525
EUR / USD = 0.9870
euromarkets:

Borrower rates
1 month 3 months 6 months
EUR 2.1/2 2.3/4 2.1 out of 4
CHF 1.75 2.1/4 2.3/4
USD 6.1/2 6.3/4 6.1/8

Exchange rates are average rates and a spread of ¼ % is noted for interest rates.

In order to cover itself against exchange rate risk, the company 'Vega' chooses to resort to the market.
forward changes.
1 Briefly describe the operations necessary for calculating the forward price.
2 Determine for each due date the amount received by the company.
3 Establish the equation that allows the company to be indifferent between a discount for
cash payment and this forward cover.

II/At the same time, in the Swiss spot foreign exchange market, a bank quotes:
1.5125-35
3-month swap points: 23-28

Is the forward foreign exchange market in equilibrium?

2- If this industrialist has 1 million CHF, can he carry out an arbitrage operation?
profitable in the futures exchange market? If so, calculate your gain.

Exercise 4
A French manufacturer that produces school notebooks carries out at the beginning of each year
the export of part of its production to the United States and Switzerland.
To maximize its sales while ensuring a certain profitability, the prices charged are:
1 notebook = 1 USD in the United States
1 notebook = 2 CHF in Switzerland
The unit selling price in France is equal to 2 EUR.
The quantity produced and marketed annually is 1,000,000 units of which 30% are
exported. Two-thirds of the quantity exported are destined for the United States and the rest to Switzerland.

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The payment terms are as follows: the period granted to Swiss clients is 3 months.
and the one granted to American clients is 6 months.
Regarding the charges borne by this industrial entity, the following information is available:
* Fixed charges = 300,000 EUR
Charges variables = 0.4 EUR per unit produced and marketed.
In Paris, on the spot foreign exchange market, the following quotations are observed:
EUR/CHF = 1.5125-35
1.2175-85
The interest rates for lenders in the various monetary markets are as follows:
1 month 3 months 6 months

EUR 41/4 41/2 47/8

USD 51/2 53/4 5
CHF 5 51/2
6
The spread is 1/8

The policy of this French industrialist regarding coverage against exchange rate risk is the
recourse to the 'Forward' market through forward buying and selling.
1-Determine the total expenses incurred by the French industrialist.
2- Determine the total revenues generated by the French industrialist.
3- calculate the quantity of notebooks to produce and market that allows the industrialist to
achieve a turnover of 2,238,350.4 EUR.

Exercise 5 (S.P 2004)

On 01/05/N, an American exporter sells electronic products to a Swiss client for a

value of 62,500 EUR granting a period of 3 months.

This exporter is facing a double problem of financing and exchange. He is consulting

his banker who is considering the following different possibilities:

a- Financing its client by discounting its bill of exchange without covering against the risk of
The discount rate is 6% per year.
b- Financing your client by making an advance in the billing currency.
c- Finance its client and protect itself against exchange rate risk by making an advance in CHF.
Grant a CMCNE to its client.

The spot rates compared to the dollar:

EUR 1.0973 - 84
CHF 0.7202 - 15

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 The annual interest rates in % for 3 months observed in the eurocurrency market:

USD 2 – 21/2
CHF -3/8
EUR 31/4 - 33/4

The advance fee charged by the bank is 1%.

A commission of 0.25% on all currency exchange transactions is charged by the bank during the
outcome of each operation.

1- Establish the numerical results of the four alternatives considered by the banker. What is the
best solution for this exporter?
What is the discount rate that would make the customer indifferent between the discount and the CMCNE?

II / It is assumed that this exporter is faced only with a currency exchange problem. In this
his banker offers him to use the options market.
The observed data on the Philadelphia Stock Exchange EUR/USD options 62500 EUR
are:

Price July August

exercise
Call EUR / 1.0970 4.25 4.40
USD
Call EUR / 1.0980 2.75 2.90
USD
Put EUR / USD 1.0970 1.75 2.20
Put EUR / USD 1.0980 3.10 3.30
The premium quotes are in cents for 1 unit of EUR.

1- Briefly present the characteristics of the options traded on this type of market.
2- This exporter decides to buy a put in the money:
What decision should he make, knowing that the spot price at maturity is 1.0965?
USD?
b- Graphically represent, based on the evolution of the spot price at expiry,
curve of gains and losses resulting from the hedging operation.
c- Calculate the result of this operation.

Exercise 6 (S.C 2004)

The 1erSeptember 2003, the German company 'alpha' exports to the United States for a
value of 1,000,000 USD payable in 3 months.

Faced with the exchange rate risk resulting from this international trade operation, we
you are asked to specify the different coverage alternatives (internal and external) that
are offered to this company while justifying your answer.

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Note: The company anticipates a decrease in the USD/EUR exchange rate.

In fact, the CFO of this firm is hesitating between a futures hedge in the market.
interbank and a discount for cash payment proposed by the American client.

2-What would be the maximum discount rate that the company 'alpha' would be willing to grant for
that she remains indifferent between these two alternatives knowing that her internal rate of return is
of 10%?

Due to some unexpected financial expenses, the American client informs the company
"alpha" that he cannot honor a cash payment but that he would agree to settle his
this two months before the due date if granted an annual discount rate of 12%.

In this case, does the company 'alpha' have any interest in accepting this offer?

The 1herSeptember
2003, we observe on the foreign exchange and eurocurrency market the data
following:
USD/EUR = 1.0309-11

Interest rate
1 month 2 months 3 months

EUR 2-2.1/4 2.1/2-2.3/4 3-3.1/4

USD 6-6.1/4 6.1/2-6.3/4 6.3/4-7

Exercise 7 (S.P 2005)

The 1erMe, a French exporter has a bill of 150,000 USD payable in 180 days. He
envision different possibilities for protection against exchange rate risk and financing of it
effect.
The exporter has the following data:
Spot exchange rate: EUR / USD = 1.3221-64
EUR / JPY = 107.43 -70
Interest rates in the Japanese money market: 3.25% - 3.7%
Interest rates in the US money market: 5.5% - 5.75%
Interest rates on the European money market: 4.6% - 4.9%
Export receivables mobilization rate: 5.5%
The fees associated with a foreign exchange advance operation amount to 0.75%.
The fees and commissions associated with a currency exchange operation amount to 0.33%.

1- In a first hypothesis, the exporter hedges against the exchange rate risk and finances himself.
through an export receivable mobilization. What is the amount received in this case by
the exporter?

2- In a second hypothesis, the exporter decides to request an advance in yen.

What is the amount received by the exporter in this case?
What is the best alternative to remember?

11
 What is the cost of the advance then.

Exercise 8 (S.P 2005)

On 30/04/N, an American company imports computer equipment from France.
following conditions:
- unit purchase price: 20 EUR
- imported quantity: 7000 units
- Payment terms: 50% in cash and 50% in 2 months

On 30/04/N, the following quotations can be observed on the spot foreign exchange market:
On the American market: EUR / USD = 1.4012-29
0.7067-80
On the French market: EUR / USD = 1.4125-40
EUR / CAD = 1.9830-54

Furthermore, on the same date, the following quotes are observed on the Philadelphia Stock Exchange.
Exchange:
PHSE, EUR/USD Options, 31250 EUR
(Cents per 1 EUR)
CALL PUT

Strike May June I June

price
1,3950 5.75 5.77 0.34 1.18

1,3970 3.60 3.85 1.02 2.05

1.3990 2.00 2.40 2.05 3.16

1- To honor the cash commitments of this importer, the currency dealer will carry out
different conversion operations. What are, in this case, the different amounts disbursed
by the importer?
The importer decides to hedge his currency risk in the options market:
a) what is the hedging strategy adopted by the company if the chosen exercise price is
1.3970 and that it defaults?
b) graphically represent the diagram of gains and losses
c) what is the amount disbursed by the company if:
the spot rate at maturity is 1.3960
the spot rate at maturity is 1.3980
3-Calculate the intrinsic value, then deduce the time value. Is this option "in the
money » ?

Exercise 9 (S.C 2005)

On April 2, a British company is due to pay a debt of 750,000 EUR in 3 months. Wanting
to protect against the depreciation of the pound, she is hesitant about the choice of coverage to use

12
in action. Knowing that:
- The options with a three-month expiration have a strike price of 1.2910 and a premium of 0.001.
GBP per EUR.
- The spot rate on 02/04 is 1.3051.
- Quarterly inflation rates are 8% in Great Britain and 6.5% in
France.
- The annual interest rates, for 3 months, on the British money market are
77/8% - 8 %
- The annual interest rates, for 3 months, on the French money market are 4%
4March 16%.
- On 02/07, the spot exchange rate is 1.2850.

What strategy do you recommend to this company?

Comment on the evolution of the competitiveness of British products and French products.
and explain the mechanisms that will allow for a return to equilibrium.

EXERCISE 10 (S.P 2007)

On 02/05, an American company establishes the status of its receivables and operating debts at
3 months presented as follows:

Currency receivables debts

GBP 1,250,000 1,550,000

EUR 250,000 -

USD - 100,000
On May 2nd, on the spot foreign exchange market, the following quotes are noted:
EUR/USD: 1.3550 - 70
GBP/USD: 1.9875 - 90
On the same date, the borrowing interest rates for 3 months, expressed as an annual percentage, are equal to:

2 ¼ % on the euro money market

2% on the sterling money market
4 ½ % on the euro-dollar market
The spreads on 3-month interest rates are ¼ % for the euro, 1/8 % for the pound, and ½ % for
the dollar.
Part I
This company plans to hedge its currency positions in the futures market.
1/ Calculate, for each currency, the 3-month exchange position. Infer the nature of the risk of

13
change to which this company is exposed.
What are the 3-month forward rates offered by the currency trader if they wish to carry out a
gain of 500 USD on the euro and 1000 USD on the pound.
3/ Calculate the net amount in USD to be received or paid by the company at maturity given that
The bank charges a fee of 50 USD on each currency exchange transaction.
Part II
On 02/05, the budget of this company shows a funding need of 500,000 USD.
over the 3 months. The company, which wishes to both finance itself and cover its foreign exchange risk
generated by his long position, decides to address his bank which offers him the alternatives
following:
A receivables financing loan from abroad for 3 months at an annual rate of 5.5%.
A 3-month advance in euros with a bank commission of ¼ %.
1/ For each of the two alternatives, determine the amount in dollars that would be collected by
the company on 02/05. Retain the best technique.
To fully cover its cash needs, the company additionally secures a bank loan.
at 3 months at an annual rate of 4 ¾ % with interest payable in advance. Calculate the amount in dollars.
of this additional loan.
Part III
For the exchange rate risk generated by its position in sterling, the American company wishes
to hedge in the foreign exchange options market. On 02/05, the foreign exchange options quotes
observed on the Philadelphia Stock Exchange are as follows:
PHILADELPHIA SE GBP/USD OPTIONS 62 500 £ (cents per 1£)
Strike Price……………Calls…………… Puts
July August July August
1.9880 1.9 2.4 1.42 1.73
1.9900 1.2 1.5 1.61 2.05
The company is hesitating between buying an option with a strike price of 1.9880 or one with a strike price of 1.9900.

1/ Calculate the intrinsic value and the time value for each of these two options. How
Can we define these last ones?
2/ Knowing that this company wants to buy the most interesting option, how much
What would her total paid premium be if she decides to hedge against default?
3/ Graphically represent in relation to the future spot price the gains and losses for
this company.
4/ What is the amount disbursed by the company at maturity, assuming that:
The spot futures rate is 1.9793 - 1.9800

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The future spot rate is 1.9900 - 1.9910
5/ Calculate the result for each of the assumptions.
EXERCISE 11 (S.P 2008)

On January 2, 2008, the Tunisian company '3N' signed an export contract for oil.
olive in the United States for an amount of 500,000 USD.

It is assumed that the delivery takes place upon ordering, on 01/02/2008. The conditions of
payments offered by the company '3N' to its American client are: 30% in cash and the
remains 1 month.

On 01/02/2008, the market data is as follows:

Spot foreign exchange market

Bank 1: USD/TND 1.1820 - 1.1898

Bank 2: USD/TND 1.1850 - 1.1890

Eurocurrency Market

Annual interest rate in % on USD for 1 month: 1 ¼ - 1 ½

Annual interest rate in % on TND for 1 month: 4 - 4 ½

The company '3N' is hesitating between two roofing techniques.

She is inquiring about the predicted evolution of the USD/TND buyer rate over the next three months.
next months. This evolution is shown in the following table:

Date 30/01 01/02 10/02 21/02 28/02 01/03

USD/TND 1.2050 1.2090 1.2280 1.2300 1.2125 1.2075

1st alternative: resort to an internal coverage technique

What internal hedging technique can the company choose? Justify your answer.

What would be the date of the payment as well as the amount received by the company?

2nd alternative: resorting to a forward hedging technique in the interbank market

Which bank should the company turn to in order to carry out this hedging operation? Justify.
your answer.

Determine the amount received by the company, and specify the date on which this will take place.
collection.

15
If the forecasts come true, deduce the best one, knowing that the IRR is equal to 8%.

The company also believes that it not only has a currency problem but
also a cash flow problem. In this case, she opts for the technique of advances in
currency under the following conditions:

Advance rate on USD: 3% per year

Foreign receivables mobilization credit rate: 5.5% per year

Determine the amount received by the company in each case while specifying the bank.
which she must address. Deduce the best alternative.

The American client offers the company a discount for cash payment at the rate of
7% per year. Does the company have any interest in accepting this offer?

EXERCISE 12 (S.C 2008)

On 01/03/N, a German company imports computer equipment from the United States for the
resell entirely in Switzerland:
- purchase price: 160 USD
- selling price: 180 CHF
- 10,000 units
The commercial conditions for purchase and sale are as follows:
- For purchases: 65% spot, 35% at 60 days
- For sales: 70% spot, 30% in 90 days
On 01/03/N, the conditions in the foreign exchange market and the eurocurrency market are
following:
Spot rate: EUR/USD=1.5056 – 1.5073
1.4225 - 1.4260
Annual interest rates in percentage:
in 1 month at 2 months at 3 months

USD 2 - 21/4 21/4- 21/2 23/8- 25/8

CHF 53/46 6 - 61/4 61/461/2
EUR 33/44 43/45 5 - 51/4

16
In order to protect itself against the exchange rate risk generated by its trading operations.
internationally, the company has the opportunity to:

First alternative: to resort to a futures contract

1/ Calculate the amounts she would disburse following her import operation.
2/ Calculate the sums she would collect following her export operation.
Second alternative: discounting the receivable to finance the debt
The financial director proposes to discount the receivable at 3 months to finance the payment of the
This is for 2 months, taking into account the management of foreign exchange risk:

If the company chooses this alternative, establish the equation in question.

2/ Deduce the discount rate proposed by the bank that would allow the company to honor.
his commitment to his American supplier.
Third alternative: resorting to the options market
On 01/03/N, you are provided with the following information:
PUT CHF/EUR
Options 62500CHF (cents per 1CHF)

Exercise price APRIL MAY JUNE

0.7025 4.15 4.75 4.80
0.7085 5.97 6,12 6.15
0.7115 6,13 6.28 6.34
The company decides to hedge its long position in the foreign exchange options market at the price
of exercise 0.7025.
1/ Calculate the total amount of the bonus.
Is the chosen option 'in the money' or 'out of the money'? Justify.
3/ Calculate the total sum to be collected by the company and its result if:
spot rate at maturity EUR/CHF=1.4270 - 1.4295
spot rate at maturity EUR/CHF=1.4200 - 1.4210
Exercise 13
At the request of a client, an operator at the International Monetary Market buys on 14/04/2003, 40
forward contracts in CHF under the following conditions:

Standard Size: 125,000

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 September 2003

Exchange rate CHF/USD = 0.7055

Maximum variation: 50 points

In the days that follow, we observe the following exchange rates CHF/USD:

Date April 15, 2002 16/04/2002 17/04/2002 18/04/2002 19/04/2002

Closing course 0.7045 0.7060 0.7065 0.7045 0.7050

What is the amount of the deposit paid by the operator?

2) Provide the daily amounts of calls and margin restitutions made by the
clearing room at the IMM.
3) If the operator decides to cancel their position on the futures market on April 19, 2002,
What would be the result obtained in this case?

EXERCISE 14 (S.C 2007)

The 1erMarch 2006, the American company 'Delta Corporation' carried out the following operations:

- An import operation of goods from France for a value of 1,000,000 EUR

40% is payable in cash and the rest at the end of June.
- An export operation of finished products to Great Britain for
an amount of 1,600,000 GBP, of which 30% in cash and the remainder to be received in 3 months.
The American company decides to intervene in the foreign exchange futures market (contracts
Chicago futures) to hedge against exchange rate risk. This company hedges by
excess by contracts whose maturity is immediately consecutive to the position on the
physical and whose characteristics are as follows:

- Standard contract size on EUR: 125,000 EUR.

- Standard contract size for GBP: 62,500 GBP.
- Standard deadline for contracts: the 4 ends of the quarter.
The spot prices (observed and forecasted) corresponding to the different dates are the
following:

1erMarch 2006 May 31, 2006 June 30, 2006

EUR/USD 1,4320-40 1,4730-50 1,4760-80
GBP/USD 2,0310-20 2,0380-95 2.0460-70
The prices of futures contracts (observed and estimated) in the futures market are:

- Future course observed on the 1sterMarch 2006, due at the end of June: 1 EUR = USD
1,4320
Future course observed on the 1sterMarch 2006, due at the end of June: 1 GBP = USD 2.0350
Estimated future exchange rate on May 31, 2006, maturing at the end of June: 1EUR = USD 1.4720
Estimated future price on May 31, 2006, due at the end of June: 1GBP = USD 2.0380

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 1- What are the different exchange positions of the company 'Delta Corporation'?
2- Regarding its position stated in EUR:
What is the nature of the commitment made by the company in the context of its coverage?
against exchange rate risk? Determine the number of contracts bought or sold.
b-Describe the operations carried out by the company on the 1st ermarch 2001 as well as may 31
2006.
c- Determine the overall result generated by this company.
3- Regarding his position denominated in GBP:
How will the company protect itself against exchange rate risk? Determine this.
number of contracts bought or sold.
b- Describe what will happen at 1ermarch as well as at the maturity of the debt.
c- What is the final result recorded by the company?

EXERCISE 15 (S.C 2006)

The company 'Toys Industry' is an American firm that manufactures and markets cars.
remote-controlled. The manufacturing of each item includes an electronic chip purchased at the price
unit price of 4 Canadian dollars from a Canadian supplier whose payment terms
are:

- 40% in cash
- 60% in 2 months
All production is exported to Great Britain at a unit sale price of 12 pounds sterling.
At the beginning of the year 2005, the quantity produced and sold is 10,000 units. The conditions of
The granted regulations are as follows:

- 40% in cash
- 60% in 2 months
There is no delay between the ordering dates of the chips, manufacturing, and delivery.
cars.

In order to protect itself against the exchange rate risk generated by import operations and
For export, the company 'Toys Industry' has decided to resort to the futures market on
currencies (more precisely on euro futures), whose characteristics are the
following:

Standard contract size: 31250 Euros

The standard deadlines are the end of March, the end of June, the end of September, and the end of December.

The company 'Toys Industry' decides to hedge on the futures market against default.
For each position, the futures contracts considered are those with the expiration date being
immediately following the maturity of the receivable or the debt.

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At 1heJanuary 2005, the observed quotations are as follows:

- 1 EUR = USD 1.1620

- Interest rate:
3 months 6 months 9 months
US Dollar 5 %
1/4
6% 61/4%
Euro 4% 4 %
1/4
41/8%
1- Determine the various exchange positions of the company 'Toys Industry' at the beginning of
the year 2005 knowing that:
1 EUR = 0.6060 GBP
1 EUR = 1.4310 CAD
2- Considering these different positions, what is the nature of the commitment made by the
"Toys Industry" company for these different contracts?
3- Determine the prices of the various futures contracts traded by the company at the beginning of
the year 2005.
At the beginning of March 2005, the observed quotations are as follows:
1 EUR = USD 1.1500
Interest rate on the US dollar for 1 month = 53/4%
1-month euro interest rate = 41/8%
a- What are the position(s) likely to be canceled on this date?
b- Determine the course or courses to which these positions have been canceled.

c- What are the net results generated by the company 'Toys Industry' following this
cancellations?

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