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    Hương Anh
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    This document contains 4 exercises describing foreign exchange hedging scenarios for a multinational company (X). Exercises 1 and 2 involve forward contracts to hedge currency inflows and outflows, respectively. Exercises 3 and 4 involve option contracts to hedge inflows and outflows. For each exercise, the document prompts for calculations of contract rates, break-even points, and potential profits or losses under different exchange rate scenarios at maturity.

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    This document contains 4 exercises describing foreign exchange hedging scenarios for a multinational company (X). Exercises 1 and 2 involve forward contracts to hedge currency inflows and outflows, respectively. Exercises 3 and 4 involve option contracts to hedge inflows and outflows. For each exercise, the document prompts for calculations of contract rates, break-even points, and potential profits or losses under different exchange rate scenarios at maturity.

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    9 views2 pages

    Chapter-3 1 Review

    Uploaded by

    Hương Anh
    This document contains 4 exercises describing foreign exchange hedging scenarios for a multinational company (X). Exercises 1 and 2 involve forward contracts to hedge currency inflows and outflows, respectively. Exercises 3 and 4 involve option contracts to hedge inflows and outflows. For each exercise, the document prompts for calculations of contract rates, break-even points, and potential profits or losses under different exchange rate scenarios at maturity.

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    of 2

    Name: ...................................................................... Class .......................................

    Exercise 1: Exercise 2:
    A multinational company (X) is going to hedge for an inflow by a forward A multinational company (X) is going to hedge for an outflow by a forward
    contract to buy 1,000,000 USD by EUR in the next 90 days (contract price is contract to sell 1,000,000 USD by EUR in the next 90 days (contract price is
    defined as IRP). Currently, spot rate is USD/EUR = 0.8280/40; annual interest defined as IRP). Currently, spot rate is USD/EUR = 0.8280/40; annual interest
    rates of USD and EUR respectively are 1.00%-2.00% and 0.55%-1.50% rates of USD and EUR respectively are 1.00%-2.00% and 0.55%-1.50%
    a. How much is contract rate? a. How much is contract rate?
    ......................................................................................................................... ..........................................................................................................................
    ......................................................................................................................... ..........................................................................................................................
    ......................................................................................................................... ..........................................................................................................................
    b. How much is X’s loss/profit if at maturity, if USD/EUR rate will be: b. How much is X’s loss/profit if at maturity, USD/EUR rate will be:
    * 0.8270/30; .................................................................................................... 0.8230/60; ....................................................................................................
    .................................................................................................................... .................................................................................................................
    0.8280/40; ....................................................................................................... 0.8240/70; ....................................................................................................
    .................................................................................................................... .................................................................................................................
    0.8300/60; ....................................................................................................... 0.8260/90; .....................................................................................................
    .................................................................................................................... .................................................................................................................
    0.8310/70......................................................................................................... 0.8270/10.......................................................................................................
    .................................................................................................................... ..................................................................................................................
    ............ ............

    ................
    .............
    Exercise 3: Exercise 4:
    A multinational company (X) is going to hedge for an inflow by an option A multinational company (X) is going to hedge for an outflow by an option
    contract to buy 1,000,000 USD by EUR in the next 90 days (contract price is contract to sell 1,000,000 USD by EUR in the next 90 days (contract price is
    defined as IRP). Contract premium fee is 0.0050 EUR/USD. Currently, spot rate defined as IRP). Contract premium fee is 0.0050 EUR/USD. Currently, spot rate
    is USD/EUR = 0.8280/40; annual interest rates of USD and EUR respectively is USD/EUR = 0.8280/40; annual interest rates of USD and EUR respectively
    are 1.00%-2.00% and 0.55%-1.50% are 1.00%-2.00% and 0.55%-1.50%
    How much is contract rate? ................................................................................. How much is contract rate? .................................................................................
    .............................................................................................................................. ..............................................................................................................................
    ............................................................................................................................. .............................................................................................................................
    How much is break-even point? ........................................................................ How much is break-even point? ........................................................................
    At maturity, does X exercise this option contract and how much is X’s At maturity, does X exercise this option contract and how much is X’s
    loss/profit if USD/EUR maturity exchange rate will be: loss/profit if USD/EUR maturity exchange rate will be:
    0.8270/30; => EXERCISE or DO NOT EXERCISE => Profit/Loss: 0.8170/30; => EXERCISE or DO NOT EXERCISE => Profit/Loss:
    ............................................................................................................................. .............................................................................................................................
    0.8280/40; .=>...................................................................................................... 0.8190/40; .=>......................................................................................................
    .............................................................................................................................. ..............................................................................................................................
    0.8315/55; ............................................................................................................ 0.8230/55; ............................................................................................................
    .............................................................................................................................. ..............................................................................................................................
    0.8380/10; ............................................................................................................ 0.8260/10; ............................................................................................................
    .............................................................................................................................. ..............................................................................................................................
    0.8390/40?............................................................................................................. 0.8270/40?.............................................................................................................
    .............................................................................................................................. ...............................................................................................................................

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