Data: 10 Forward Rate Data: 10 Interest Rate Data for India: 11 Interest Rate Data for US: 11 Analysis and Discussion 11 Deviations from Interest Rate Parity (DIRP): 11 One Month Forwards: 11 3 Month Forwards: 13 6 Month Forwards: 14 9 Month Forwards: 15 12 Month Forwards 16 Econometrics 17 Unit testing for validating stationary data 17 Regression Analysis 18 Analysis 18 One-month forward 18 Three-month Forward 20 Six Month Forward 21 Nine Month Forward 22 Twelve Month Forward 24 Analysis
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Domestic-currency invoicing and hedging allow internationally active firms to reduce their exposure to exchange rate variations. This paper discusses exchange rate exposure in terms of transaction risk (the risk of variations of the value of committed future cash flows)‚ translation risk (the risk of variations of the value of assets and liabilities
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treasurer of Apple has an extra cash reserve of USD 100.000.000 to invest for six months. The six-month interest rate is 8 % per annum in the U.S. and 7 % per annum in Germany. Currently‚ the spot exchange rate is USD/EUR = 1.01 and the sixmonth forward exchange rate is USD/EUR = 0.99. The treasurer of Apple does not wish to bear any exchange risk. Where should he/she invest to maximize the return? Investing in the US | Amount in USD | US | Amount in USD | | | 100.000.000‚00 | 1‚0399 | 103
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either a cash flow‚ an asset‚ or a contract (e.g.‚ a forward contract) that will rise (fall) in value and offset a fall (rise) in the value of an existing position While hedging can protect the owner of an asset from a loss‚ it also eliminates any gains from an increase in the value of that asset. A major motive for firms to hedge is to increase the present value of firms. The value of a firm is the present value of all expected future cash flows in the future. For expected cash flows with higher
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Exercise international finance 1. The current spot exchange rate is €1‚40/£ and the three-month forward rate is €1‚35/£. Based on your analysis of the exchange rate‚ you are pretty confident that the spot exchange rate will be €1‚37/£ in three months. Assume that you would like to buy or sell £1.000.000. a. What actions do you need to take to speculate in the forward market? What is the expected euro profit from speculation? b. What would be your speculative profit in euro terms if in
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finance the company other operation. Eastbridge expects the share price of Cambridge to be £7.00 in one month time. To hedge against exchange rate exposure‚ Eastbridge sold £ forward contract at the forward rate of US$1.63 based on the expected share price of £7.00. a) What is the amount of £ to be sold in the forward contract? b) How much will Eastbridge receive (in US$) if the share price of Cambridge is £7.00 in one month time? c) How much will Eastbridge receive (in US$) if the
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prices and managing currency risk. • Eurodollar 3-month forward rate 3.25% Euroyen 3-month forward rate 3.1875 • Yen/Dollar spot rate ¥106.3500 3-months forward ¥106.3300 • 94 SEP call price 1.99 (100ths of a cent per yen‚ ¥6‚250‚000/contract) • 93.5 SEP put price 2.03 (100ths of a cent per yen‚ ¥6‚250‚000/contract) • First six months of fiscal year‚ dollar depreciated from 124.80 to 106.35 or 3.15% per month. Three-month forward quotes also reflect dollar depreciation from 124.865 to106
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(IMS) Frankfurt & New York................................................. Peso Exchange Rate Changes……………………….. Good as Sold……………………………………………. Gold Standard…………………………………………… Spot Rate Customer……………………………………. Forward Rate……………………………………………. Forward Discount on the dollars………………………. Forward Premium on the euro………………………… Iraqi Imports…………………………………………….. 19 20 20 22 22 22 23 23 24 26 28 29 30 31 32 Problem # 2.1: Problem # 2.2: Problem # 2.3: Problem # 2.4: Problem # 2.5: Problem # 2.6: Problem
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Users of the London Precious Metals Market Dealing Basics The London Gold and Silver‚ Platinum and Palladium Fixings Borrowing‚ Lending and Forward Transactions Precious Metals Loans and Deposits Precious Metals Forwards Options in the Precious Metals Markets Additional Dealing Facilities Deferred Accounts Spot Deferred Forward Contract Inventory Loans Gold Forward Rate Agreements (FRA) and Interest Rate Swaps (IRS) FRA & IRS Credit Risk Exchange for Physical (EFPs) Support Facilities Vaulting Clearing
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Global Energy Management Institute International Financial Risk Management R.J. Reynolds International Financing HBS Case 9-287-057 The case is set in the context of RJR’s 1985 financing of its $4.9 billion acquisition of Nabisco Brands Inc. To finance the acquisition‚ RJR was proposing the issue of $1.2 billion of 12 year notes and the same amount in preferred stock. It had already funded $1.5 billion of the acquisition leaving $1 billion more to finance. Challenges facing RJR: Of the
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