Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. ibm has sold an order of computers to a canadian f

IBM has sold an order of computers to a Canadian firm for C$1,000,000. Payment is...

60.1K

Verified Solution

Question

Finance

  1. IBM has sold an order of computers to a Canadian firm for C$1,000,000. Payment is due in three months. Although IBM does not usually worry about foreign exchange risk on Canadian sales it would like to explain what alternatives for hedging exist and their costs in order to help price future sales correctly.

The following data are available:

Three-month interest rate fore borrowing or investing U.S. dollars: 9% per year

Three-month interest rate for borrowing or investing Canadian dollars: 12% per year

Spot rate: C$1.2000/$

Three-month forward rate: C$1.2100/$

Three-month options from Citibank: Put options on C$1000,000 at exercise price of C$1.2000, and a 3% premium

  1. What are the costs of each alternatives? What are the advantages of each?
  2. What is the break-even investment rate when comparing forward and money market alternatives? Show your calculations.

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Q

A student recorded the different types of pizza their friends like in the table below...

Statistics
Q

a.Express y in terms of x given that dy/dx = (y + 2)(2x + 1) given...

Basic Math
Q

Using traditional methods it takes 105.0 hours to receive a basic driving license. A new license...

Basic Math
Q

1a. Spheroidite steel is a good example of Metal Matrix Composite material. What are the matrix...

Mechanical Engineering
Q

A 100 M CUSO4 10 mM BA p JNK SAPK JNK SAPK B tubulin huRK13...

Biology
Q

presided as President of the Constitutional Convention O James Madison O James Monroe O George...

Biology
Q

B C D Question 14 The diagram shows two populations of toads Population B formed...

Biology
Q

Testion 4 Points 2 Identify the type of irony described below A character walks out...

Biology
Q

- Island Remanufactured Wood Products Inc. sells its products at trade discounts of 30%, 10%....

Accounting
Q

FCC company used 45,000 components for their widgets at a cost of $3.75 each. The...

Accounting
Q

Consider your favourite restaurant. How do you think this restaurant might use Online Transaction Entry...

Accounting
Q

8. Consider a proposed project for capital budgeting. Your company estimates that the project's NPV...

Finance