for up to 5 or 10 years. Two contract alternatives are offered to customers ‘FIRM-FIXED’ program ‘FIRM-FLEXIBLE’ program FIRM-FIXED: Customers are agreed to fixed monthly deliveries at fixed prices FIRM-FLEXIBLE: Fixed price and total volume of future deliveries but gave flexibility to set the delivery schedule. Customer could request 20% of its contracted volume for any 1 year within 45 days notice. Implementation: By 1993‚ MGRM committed to sell forward the equivalent of over 150 million
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of outstanding financial obligations incurred prior to a change in exchange rates. Operating Exposure (Economic Exposure‚ Competitive Exposure‚ Strategic Exposure) – measures a change in the present value of a firm resulting from any change in future expected operating cash flows caused by unexpected changes in exchange rates. Accounting Exposure (Translation Exposure) – measures accounting-derived changes in owner’s equity as a result of translating foreign currency financial statements into
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March with payment due three months later in June. Scout Finch has collected the following financial market information for the analysis of her currency exposure problem: Spot Exchange rate: $1.7640 per British pound. Three month forward rate: $1.7549 per pound (a 2.2676% p. a. discount on the pound) Dayton’s cost of capital: 12% U.K. three month borrowing interest rate: 10.0% (or 2.5% per quarter) U.K. three month investment interest rate: 8.0% (or 2% per quarter) U.S. three month
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January 1986. 500‚000‚000 USD x 2.4DM/USD = 1‚200‚000‚000 DM The cost of the aircraft purchase will be 1200 million DM. 2. Cover the purchase price using forward contracts. If the company use forward contracts they have the obligation to perform‚ i.e. they have to buy the amount they have agreed upon in one year for the forward rate of 3.20 DM/USD. If they fully hedging the cost the all in cost of the aircraft purchase will be: 500‚000‚000 USD x 3.2DM/USD = 1‚600‚000‚000 DM The
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it. Therefore‚ if he would have choose to do a forward or a future contract hedge‚ it wouldn’t have been convenient since he was obligated to sell U.S. dollars on a specific day. What would have been a good option was to sell an American put option of US $161‚030‚000 with an expiration date of December 2008. This would allow Peter to hedge against his expected depreciation of the U.S dollar but doesn’t force him to sell the U.S dollar in the future in case if the American firm decides to turn down
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------------------------------------------------- ------------------------------------------------- ------------------------------------------------- Financial Risk Management using Derivatives; A case of selected financial institutions in Uganda ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- Abstract The RAP examines the management
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has revenues in Yen and does not have expenses in Yen. Thus it would be converting the Yen to Dollar and so is exposed to foreign exchange risk. The value of Yen has declined recently and it is difficult to forecast what the value could be in the future. Also currency speculation should be left to speculators and Disney should not play on the exchange rate. It would be wise to reduce the risk due to changes in exchange rate. The royalty receipts form a significant part of the pre tax income of Disney
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Chapter 5 Currency Derivatives Lecture Outline Forward Market How MNCs Can Use Forward Contracts Non-Deliverable Forward Contracts Currency Futures Market Contract Specifications Trading Futures Comparison of Currency Futures and Forward Contracts Pricing Currency Futures Credit Risk of Currency Futures Contracts Speculation with Currency Futures How Firms Use Currency Futures Closing Out a Futures Position Transaction Costs of Currency Futures Currency Call Options Factors Affecting Call
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Pay Structures / Salary Structures Introduction: Pay StructuresWhat are Pay Structures or Salary Structures? Pay structures‚ also known as salary structures‚ set out the different levels of pay for jobs‚ or groups of jobs‚ by reference to: their relative internal value‚ as established by job evaluation external relativities‚ via market rate surveys where appropriate‚ negotiated rates for the job What are the main characteristics of Pay Structures? indicate rates of pay for different
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derivative contracts include all of the following except: a. commodity price risk b. foreign exchange risk c. interest rate risk d. property damage e. none of the above‚ i.e. they are all commonly hedged with derivatives Answer D 3 Which of the following is TRUE about a futures contract? a. the payoff is equal to the difference between the price of the underlying asset & the price set in the futures contract. b. the payoff is the same as that of a call option. c. Futures contracts always
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