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CH05 Practice

Graylon, Inc. negotiated a forward contract to sell €200,000 in 3 months at a rate of $1.10. The current spot rate is $1.12 and 3-month forward rate is also $1.10. In 3 months, the spot rate is $1.15. Graylon will receive $220,000 for the euros. The one-year forward rate for the British pound is $1.60, while the spot rate is $1.63. Therefore, the forward rate represents a discount of $0.03 or 3% per year. If a firm exercises its option to hedge NZ$12.5 million at an exercise price of $0.

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45 views1 page

CH05 Practice

Graylon, Inc. negotiated a forward contract to sell €200,000 in 3 months at a rate of $1.10. The current spot rate is $1.12 and 3-month forward rate is also $1.10. In 3 months, the spot rate is $1.15. Graylon will receive $220,000 for the euros. The one-year forward rate for the British pound is $1.60, while the spot rate is $1.63. Therefore, the forward rate represents a discount of $0.03 or 3% per year. If a firm exercises its option to hedge NZ$12.5 million at an exercise price of $0.

Uploaded by

JUBAIT HOSSAIN
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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CHAPTER 05

1. Graylon, Inc., based in Washington, exports products to a German firm and will receive payment
of €200,000 in three months. On June 1, the spot rate of the euro was $1.12, and the 3-month
forward rate was $1.10. On June 1, Graylon negotiated a forward contract with a bank to sell
€200,000 forward in three months. The spot rate of the euro on September 1 is $1.15. How much
will Graylon receive in $ for the euros.

2. The one-year forward rate of the British pound is quoted at $1.60, and the spot rate of the British
pound is quoted at $1.63. what is the forward premium or discount?

3. A firm wants to use an option to hedge 12.5 million in receivables from New Zealand firms. The
premium is $.03. The exercise price is $.55. If the option is exercised, what is the total amount of
dollars received

4. You purchase a call option on pounds for a premium of $.03 per unit, with an exercise price of
$1.64; the option will not be exercised until the expiration date, if at all. If the spot rate on the
expiration date is $1.65, your net profit per unit is?

5. You are a speculator who sells a put option on Canadian dollars for a premium of $.03 per unit,
with an exercise price of $.86. The option will not be exercised until the expiration date, if at all.
If the spot rate of the Canadian dollar is $.78 on the expiration date, your net profit per unit is:

6. The 180-day forward rate for the euro is $1.34, while the current spot rate of the euro is $1.29.
What is the annualized forward premium or discount of the euro?

7. The annualized forward premium on the euro is 7%. What is the 90-day forward rate on the euro
if the spot rate today is $1.25?

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