Problem 8
A UK importer has to pay $ 200,000 in 2 month’s time. He fears an appreciation
of the dollar. What can he do with the knowledge of the following data?2 - m interest rate: US$: 3 percent
UK $: 4 percent
Spot rate: $ 1.8414/---
Activity for Group C
Problem 9
An Indian subsidiary of a UK multinational has a translation exposure of Rs.20
million. The rates are as follows;
Spot: Rs.52, 000/---
One-year forward: Rs.55, 1100/- $
A 5 percent depreciation of the rupee is expected. How can the exchange risk be
hedged?Problem 10
Total translation exposure of a company is Rs.one million. This exposure is in
French francs. Interest rates are 5 and 8 percent for the franc and the rupee
respectively. How is hedging to be done? Spot rate is Rs.4 per FFr. The rupee is
likely to depreciate by 3 percent.
Problem 11
A company will receive $ 2 million in 2 months (June) from now. It will like to
place this sum of for 3 months in Euro-dollar market. The rates are likely to go
down. The current rate is 1 percent over and above that of LIBOR, which is 8
percent. Euro-dollar 3 months interest future is quoted at 50. What can the
company do?
Problem 12
A company is to borrow DM one million in December for 3 months. At the
moment (September), the December DM future is being quoted at 90. The market
rate of Euro-DM is 7 percent, which is likely to go up in months to come.