Trident’s Transaction Exposure Trident sells equipment to a British firm, Regency, for £1m, a large sale in relation to total revenues. The contract is made in March for payment three months later....

Live Exam help for International Financial Risk Management


Trident’s Transaction Exposure Trident sells equipment to a British firm, Regency, for £1m, a large sale in relation to total revenues. The contract is made in March for payment three months later. CFO would be very happy if the £ appreciated against the $ but is concerned it might fall. She budgets the minimum acceptable margin is at sales price of $1.7m. Then, she collects the following financial and market information for the analysis of her currency exposure problem:  Budget rate (lowest acceptable FX rate): $1.70/£  Spot rate: $1.7640/£  The company’s Bank is willing to buy a 3‐month forward rate: $1.7540/£ (a 2.2676% per annum discount on the pound)  Trident’s cost of capital: 12.0% p.a.  UK 3‐month borrowing rate: 10.0% p.a. (or 2.5% per quarter)  UK 3‐month investment rate: 8.0% p.a. (or 2.0% per quarter)  US 3‐month borrowing rate: 8.0% p.a. (or 2.0% per quarter)  US 3‐month investment rate: 6.0% p.a. (or 1.5% per quarter)  June put option in the over‐the‐counter (bank) market for £1m; strike price $1.75 (nearly at-the-money); 1.5% premium;  Trident’s foreign exchange advisory service forecast of 3‐month future spot rate: $1.76/£ What we can say to the CFO? Online test Subject: International Financial Risk Management 1 attempt , 3 questions , 2 hour time limit Timing - 12pm to 2:30 pm (IST) - 21st june