国际财务管理Jeff Madura英文第八版chap5 case 答案

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Chapter 5 Case Study use of currency derivative instruments

1. the table shows how the option choices have changed for Blades. If it wants to ensure no more than 5% above the spot rate, the option with the exercise price of $.00756 should be considered, although the premium on that option now has increased to be worth 2% of the exercise price (more expensive). The option premium is higher than what the firm normally prefers to pay. The firm could pay a lower premium by purchasing the alternative option with an exercise price of $.00792, but that exercise price is 10% above the existing spot rate. So if the firm is to continue to use options, it must accept either paying a higher premium than it would prefer, or a higher exercise price that limits the effectiveness of the hedge. If it decides to use an option, the tradeoff is paying a premium of $1417.50 to limit the payables amount to $99000 or paying a premium of $1890 to limit the payables amount to $94500. The preferred option depends on the firm’s assessment about the yen, but many analysts would select the higher premium (an extra $472.50) to pay for the lower limit on payables.

2. Blades could also remain unhedged, but given its previous desire to hedge because of the volatile movements even before the event, it would have an even stronger desire to hedge once the event caused more uncertainty-increasing event, Blades should seriously consider futures contracts as an alternative to options. Thus, the firm could purchase a futures contract and lock in its future payment at the same futures price as before the event.

3. The expectation of the future spot rate would be equal to the futures rate, $.006912. For example, suppose speculators expect the yen to appreciate. They would buy yen futures now. If the yen appreciates, they will buy the yen at the futures rate in two months and sell them at the spot rate prevailing at that time. Thus, if the market expectation is that the yen will appreciate, all speculators will engage in similar actions, which would place upward pressure on the futures rate and downward pressure on the expected future spot rate. This process continues until the futures rate is equal to the expected future spot rate. Therefore, the expected spot rate at the delivery date is equal to the futures rate, $.006912. 4. ① remain unhedged: expected spot rate $.006912 Amount of yen payables 12500000

Cost in two months ($.006912 * 12500000) $86,400.00 ② purchase one futures contract: futures price per unit $.006912 Amount of yen payables 12500000 Cost in two months ($.006912 * 12500000) $86,400.00 ③ purchase two options

Options information option1 option 2 Exercise price $.00756 $.00792 Premium per unit $.0001512 $.0001134 Units in contract 6,250,000 6,250,000

Total premium Exercise? Amount paid for yen Total paid

Two options, exercise $1890.00 NO $86400 $88290 Price of $.00756

Two options, exercise $1417.50 NO $86400 $87917.50 Price of $.00792

One option of each $ 1653.75 1-no; 2-no $86400 $ 88053.75 Exercise price


So, the optimal choice, given the expected future spot rate in Q3 and given that the decision is made solely on a cost basis, is to purchase futures contract, which would result in an actual cost on the delivery date of $86400. Although remaining unhedged also has an expected cost of $86400, actual costs incurred on the delivery date to purchase yen may deviate substantially from this value, depending on the movements of the yen between the order date and the delivery date. Consequently, the firm will probably prefer using a futures contract over remaining unhedged.

5. No, as mentioned in the case, the yen is very volatile and, therefore, the actual costs incurred may turn out to be lower had the firm employed either an option to hedge the yen payable or remained unhedged. By employed a futures contract to hedge, which locks the firm into the price it will pay to buy the yen at the delivery date, the firm forgoes any cost advantage that may unhedged and employing options afford the firm with the flexibility to buy yen at the spot rate; this flexibility is not available with a futures contract.

6. If the futures rate remains at its current level while the expected spot rate at the delivery date increased($.006912 + 2*0.0005=$.007912), remaining unhedged will become more expensive than hedging with a futures contract. However, as the spreadsheet shows, the option with the exercise price of $.00756 would now be exercised. Nevertheless, since both options have an exercise price greater than the futures rate of $.006912, and since the expected future spot rate is greater than the futures rate, the futures contract is again the best choice for the firm. Spreadsheet: ① remain unhedged: expected spot rate $.007912 Amount of yen payables 12500000

Cost in two months ($.006912 * 12500000) $98,900.00 ② purchase one futures contract: futures price per unit $.006912 Amount of yen payables 12500000 Cost in two months ($.006912 * 12500000) $86,400.00 ③ purchase two options

Options information option1 option 2 Exercise price $.00756 $.00792 Premium per unit $.0001512 $.0001134 Units in contract 6,250,000 6,250,000

Total premium Exercise? Amount paid for yen Total paid

Two options, exercise $1890.00 YES $94,500.00 $96,390.00 Price of $.00756

Two options, exercise $1417.50 NO $98,900.00 $100,317.50 Price of $.00792

One option of each $ 1653.75 1-YES; 2-no $96,700.00 $ 98,353.75 Exercise price

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