Professor Ted Azarmi's Forum

Guest


Author Topic: Hedging the transaction exposure  (Read 17040 times)

Offline Arrow

  • Super Hero
  • ****************
  • Posts: 18
Re: Hedging the transaction exposure
« Reply #30 on: June 17, 2009, 01:01:27 am »
Hello,

see my solution attached

Best regards

Michael Wagner

Offline InaRapp

  • Platinum Member
  • *******
  • Posts: 7
Re: Hedging the transaction exposure
« Reply #31 on: June 17, 2009, 08:39:40 pm »
Please find attached my example for the Forward Cover and the Money Market Hedge.

Best regards,

Ina Rapp

Offline Alena Hörger

  • Senator Member
  • *************
  • Posts: 13
Re: Hedging the transaction exposure
« Reply #32 on: June 17, 2009, 09:41:03 pm »
Please find my solution attached.

Best regards,
Alena Hörger

Offline Winge

  • President Member
  • **************
  • Posts: 14
Re: Hedging the transaction exposure
« Reply #33 on: June 18, 2009, 12:47:43 pm »
Please find my homework attached.

Greetings.
Winfried Gernert

Offline lena

  • Hero
  • ***************
  • Posts: 15
Re: Hedging the transaction exposure
« Reply #34 on: June 18, 2009, 01:57:12 pm »
Please find homework attached!

Best regards, Lena Hoefling

Offline mary1405

  • Senator Member
  • *************
  • Posts: 13
Re: Hedging the transaction exposure
« Reply #35 on: June 18, 2009, 02:07:02 pm »
homework is attached

Offline Hendrik Sill

  • Super Hero
  • ****************
  • Posts: 27
Re: Hedging the transaction exposure
« Reply #36 on: June 18, 2009, 02:51:49 pm »
Company A sells goods to company B. Payment of €3,500,000 is due in six months. Since company A's operations are yen based,
it faces transaction exposure.

S=133.62 Yen/1€ (spot rate)
F= 133.23 yen/€1 (6-month forward rate, modified to satisfy interest rate parity)

Japanese 6-month interest rate is Rf=0.19%
German 6-month interest rate is Rd= 0.77%

F/S= (133.234 yen/€1)/(133.62 yen/€1)= 0.997=(1+Rf)/(1+Rd)=1.00095/1.00385

1) Covering Using a Forward Contract

Company A contracts to sell €3,500,000 in six months using a forward contract.
The six-month forward rate is 133.234 yen/€1

So when Company B pays for the goods it received, company A delivers on its
forward contract and receives €3,500,000*133.234 yen/€1=466,340,000 yen.

2)Using a Money Market Hedge

Company A borrows enough money in € for six months so that when the payment of its loan is due it will
have to pay back €3,500,000. Thus it borrows 3,500,000/1.00385= €3,486,576.68.

It now exchanges the €3,486,576.68 into yen at the spot rate of 133.62 yen/€1. So it receives
3,486,576.68*133.62 yen/€= 465,876,376 yen. Company A then loans the 465,876,376 yen at an interest rate
of 0.19%. Therefore it receives 1.00095*465,876,376 yen= 466,318,958.60 in six months.
(Note: the result of the money market hedge and the forward contract should be exactly the same. However,
in this case there's a difference of 21,001.40 yen (about 0.0045 per cent) ).

Offline danielfroeschle

  • Senator Member
  • *************
  • Posts: 13
Re: Hedging the transaction exposure
« Reply #37 on: June 18, 2009, 02:54:26 pm »
My homework is attached

Best regards

Daniel Froeschle

Offline Matylda

  • Super Hero
  • ****************
  • Posts: 27
Re: Hedging the transaction exposure
« Reply #38 on: June 18, 2009, 03:08:14 pm »
Please find attached my homework.

Best regards
Matilda Taberski

Offline simone.klausmann

  • President Member
  • **************
  • Posts: 14
Re: Hedging the transaction exposure
« Reply #39 on: June 18, 2009, 03:11:56 pm »
Please find my solution attached.

Best regards,
Simone Klausmann

Offline FelixF

  • President Member
  • **************
  • Posts: 14
Re: Hedging the transaction exposure
« Reply #40 on: June 20, 2009, 04:21:03 pm »
Solution is attached.

Best regards,
Felix Faißt

Offline Sarina Mauthofer

  • Senior Board Member
  • ***********
  • Posts: 11
Re: Hedging the transaction exposure
« Reply #41 on: June 21, 2009, 03:29:49 pm »
homework is attached.
Best regards,
Sarina Mauthofer

Offline kathrinheidl

  • Senator Member
  • *************
  • Posts: 13
Re: Hedging the transaction exposure
« Reply #42 on: June 22, 2009, 12:01:49 am »
My homework is attached.

Best regards,
Kathrin Heidl

Offline Niclas Huck

  • President Member
  • **************
  • Posts: 14
Re: Hedging the transaction exposure
« Reply #43 on: June 23, 2009, 10:03:37 am »
Please find attached my homework.

Best regards
Niclas Huck

Offline Sébastien.Fabre

  • President Member
  • **************
  • Posts: 14
Re: Hedging the transaction exposure
« Reply #44 on: June 24, 2009, 11:23:15 am »
Hi
please find enclosed my solution
best regards,

Sébastien Fabre