determined the first and second derivative determined the first and second deriv
ID: 2804950 • Letter: D
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determined the first and second derivative determined the first and second derivative determined the first and second derivative determined the first and second derivative determined the first and second derivative Multiple Choice (3% each, total 29 questions) A P& G France, procures much of its toletries product line from a Japanese company Payment terms by French importers are typically 180 days or longer. P & G France wishes to hedge a 8.5 million lapanese ven payable. Options are available on the Yens. Euro forward rates are available against the yen. Please recommend a hedging strategy. Assumptions 180-day account payable, Japanese yen () Spot rate (WEuro) 180-day forward rate (VEuros) Expected spot rate in 180 days (VEuros) 180-day Euro investing rate 180-day Japanese yen investing rate P & G France's cost of capital Values 8,500,000 120.60 122.50 125.00 4.000% 1.500% 12.00% Which strategy will hedge the risk and make the result certain? Buying 60 days Japanese forward. Borrowing Japanese Yens in the money market (returning euros) 1. a Seling 180 days Japanese xen forward b. c. Remaining unhedged 2. When options on Yen are avalilable, which strategy we can do now will hedge the risk and make the result certain? a. Buy a call and Sell a put with the same expiration date b. Buy a put with the same expiration date c. Sell a call with the same expiration date When P and G France buys 180 day Japanese Yen forward to hedge the 8500000 yens account payable, how much will it pay in Euros? 3. a. 70481 ( 69388 c. 68000 d. 59000 Siam Cement, the Bangkok-based cement manufacturer, suffered enormous losses with the coming of the Asian crisis in 1997. The company had been pursuing a very aggr growth strategy in the mid-1990s, taking on massive quantities of foreign currency denominated debt (primarily U.s. dollars). When the Thai baht (B)was devalued from its pegged rate of B25.0/s in July 1997, Siam's interest payments alone were over $900 million on its outstanding dollar debt (with an average interest rate of 8.40% on its US dollar debt at that time).Assuming Siam Cement took out $50 million in debt in June 1997 at 8.40% interest, and had to repay it in one year when the spot exchange rate had B. essiveExplanation / Answer
2. P&G France wants to hedge itself against an expected yen depreciation in 180 days time period. Therefore when executing option contracts, it would like to go for a strategy that will hedge it bullish position. Therefore, option a) will be appropriate for this position. It is called a synthetic long option. It has unlimited profit as the stock price rises, and unlimited loss as the stock price falls. Since Yen value is supposed to rise against euros, this strategy should work.
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