Business, 08.09.2021 20:40 alexismoran1495

Plains States Manufacturing has just signed a contract to sell agricultural equipment to Boschin, a German firm, for €1,250,000. The sale was made in June with payment due six months later in December. Because this is a sizable contract for the firm and because the contract is in Euros rather than dollars, Plains States is considering several hedging alternatives to reduce the exchange rate risk arising from the sale. To help the firm make a hedging decision you have gathered the following information. The spot exchange rate is $.8924/€ The six month forward rate is $.8750/€ Plains States’ cost of capital is 11% The Euro zone 6-month borrowing rate is 9% (or 4.5% for 6 months) The Euro zone 6-month lending rate is 7% (or 3.5% for 6 months) The U. S. 6-month borrowing rate is 8% (or 4% for 6 months) The U. S. 6-month lending rate is 6% (or 3% for 6 months) December put options for €625,000; strike price $.90, premium price is 1.5% (of spot exchange rate; that is, the premium is 1.5% of spot rate per Euro) Plains States’ forecast for 6-month spot rates is $.91/€ The budget rate, or the lowest acceptable sales price for this project, is $1,075,000 or $.86/€ a) If Plains States chooses not to hedge their euro receivable, the amount they receive in six months will be .
A. $1,125,000
B. $1,137,500
C. $1,115,500
D. undeterminable today
b) If Plains States chooses to hedge its transaction exposure in the forward market, it will €1,250,000 forward at a rate of .
A. sell; $.8750/€
B. sell; $.8924/€
C. buy; $.8750/€
D. buy; $.8924/€
c) Plains States chooses to hedge its transaction exposure in the forward market at the available forward rate. The payoff in 6 months will be .
A. $1,137,500
B. $1,125,000
C. $1,093,750
D. $1,075,000

Answers: 2

Show answers

Another question on Business

Business, 21.06.2019 18:00

Which of the following results from outsourcing jobs from the united states to other countries? a. increasing exports out the united states. b. lower wages for u.s. workers. c. reduced immigration to the united states. d. subsidies for goods made in the united states. 2b2t

Answers: 2

Answer

Business, 21.06.2019 21:00

According to maslow's hierarchy of needs theory, which of the following would be an issue that requires the fulfillment of a lower order need? a)the need for a challenging project at work. b)the need for a promotion at work.c) the need to locate your business in an area with a low crime rate. d)the need for a mentor to you ascend within the company. none of the above

Answers: 3

Answer

Business, 22.06.2019 01:00

How does the economy of cuba differ from the economy of north korea? in north korea, the government’s control of the economy has begun to loosen. in cuba, the government maintains a tight hold over the economy. in cuba, the government’s control of the economy has begun to loosen. in north korea, the government maintains a tight hold over the economy. in north korea, there is economic uncertainty in exchange for individual choice. in cuba, there is economic security in exchange for government control. in cuba, there is economic uncertainty in exchange for individual choice. in north korea, there is economic security in exchange for government control.\

Answers: 2

Answer

Business, 22.06.2019 07:30

When selecting a savings account, you should look at the following factors except annual percentage yield (apy) fees minimum balance interest thresholds taxes paid on the interest variable interest rates

Answers: 1

Answer

You know the right answer?

Plains States Manufacturing has just signed a contract to sell agricultural equipment to Boschin, a...

Questions