Today an investor buys 1,000 shares of a eurozone stock at 60 per share. The...
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Today an investor buys 1,000 shares of a eurozone stock at 60 per share. The spot exchange rate is $1.30 per . After 6 months has gone by, the price of the stock has increased to 64.
(a)Calculate the value of the unhedged portfolio if after 6 months has gone by the spot exchange rate is $1.38 per .
(b)Calculate the value of the unhedged portfolio if after 6 months has gone by the spot exchange rate is $1.24 per .
(c)Suppose that when the original investment was made, the investor obtained a six-month forward position to sell 60,000 at $1.3108 per . Calculate the value of the hedged portfolio if after 6 months has gone by the spot exchange rate is $1.38 per . At this date, i.e. after 6 months, the investor will offset the forward position.
(d)Suppose that when the original investment was made, the investor obtained a six-month forward position to sell 60,000 at $1.3108 per . Calculate the value of the hedged portfolio if after 6 months has gone by the spot exchange rate is $1.24 per .At this date, i.e. after 6 months, the investor will offset the forward position.
(e)Briefly explain the key idea illustrated by the above example and calculations.
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