50.1K

Verified Solution

Link Copied!

please assist me with a-d

Score: 0 of 1 pt X Problem 10-16 (algorithmic) Question Hop Larkin Hydraulics. On May 1, Larkin Hydraulica, a wholly owned subsidiary of Caterpillar (U.S.), sold a 12-megawait compression turtinfo Rebecke-Terwilleger Company of the Netherlands for 4,600,000, payable as 2,300,000 on August 1 and 2,300,000 on November 1, Larkin derived to price quote of 4,600,000 on April 1 by dividing its normal US dollar sales price of $5,016,000 by the then current spot rate of $10000 By the time the order was received and pooked on May 1, the euro had strengthened to $1 14001, do the sale was in fact worth 4,000,000 X 51.140055,244,000. arin had already gained an extra $230,000 from favorable exchange rate movements. Nevertheless, Larin's director of finance now wondered if the firm should hedge against reversal of the recent end of the euro. Four approaches were possible: a. Hedge in the forward market. The month forward exchange quote was 51.1470) and the month forward quole was $1.15400 b. Hedge in the money market Larkin could borrow euron from the Frankfurt branch of its US bank at 9.87% per annum c. Hedge with foreign currency options August put options were available at strike price of $1 1400 for a prorlum of 19% per contract, and November put options were available at $1,14001 for a premium of 1,3% August call options at $1.1400/ could be purchased for premium of 2.8% and November call uptions at $1.1400 were available at a 2.7% premium d. Do nothing: Larkin could wait until the sales proceds were received in August and November, hope the recent strengthening of the euro would continue, and sell the a. How much in US dollars will Larion receive on November 1st with a forward market hode? Round to the nearest dohor) Enter your answer in the answer box and then click Check Answer By the time the order was received and booked on May 1, the euro had strengthened to 51.1400/, so the sale was in fact worth 64.600,000x 51.1400/=$5,244,000. Larkin had already gained an extra $230,000 from favorable exchange rate movementu. Nevertheless, Lardin's director of finance now wondered if the firm should hedge against a reversal of the recent trend of the euro. Four approaches were possible a. Hedge in the forward market The 3-month forward exchange quote was $1.14707 and the 6-month forward quote was $1.1540 b. Hedge in the money market: Larkin could borrow euros from the Frankfurt branch of its U.S. bank at 9.87% per annum c. Hedge with foreign currency options. August put options were available at strike price of $1.1400/ for a premium of 10% per contract, and Novembor pot options were available at $1.1400 for premium of 1.3% August call options at $1.1400/e could be purchased for a premium of 29%, and November call options at $1,14001 were available at a 27% premium d. Do nothing Larion could wait until the sales proceeds were received in August und November, hope the recent strengthening of the auto would continue, and sell the DUTOS received for dollar in the spot market Larkin estimates the cost of equity capital to be 14% per annum As a small fiem, Larkin Hydraulica is unable to raise funds with long-term debt. U.S. T-bil yield 3.8% pornhum What should Larkin do? How much in U.S. dollars will Linkin receive on November 1st with a forward market hedgo? Round to the nearest collar) Enter your answer in the snower box and then click Check Answer Date 14 CA Score: 0 of 1 pt X Problem 10-16 (algorithmic) Question Hop Larkin Hydraulics. On May 1, Larkin Hydraulica, a wholly owned subsidiary of Caterpillar (U.S.), sold a 12-megawait compression turtinfo Rebecke-Terwilleger Company of the Netherlands for 4,600,000, payable as 2,300,000 on August 1 and 2,300,000 on November 1, Larkin derived to price quote of 4,600,000 on April 1 by dividing its normal US dollar sales price of $5,016,000 by the then current spot rate of $10000 By the time the order was received and pooked on May 1, the euro had strengthened to $1 14001, do the sale was in fact worth 4,000,000 X 51.140055,244,000. arin had already gained an extra $230,000 from favorable exchange rate movements. Nevertheless, Larin's director of finance now wondered if the firm should hedge against reversal of the recent end of the euro. Four approaches were possible: a. Hedge in the forward market. The month forward exchange quote was 51.1470) and the month forward quole was $1.15400 b. Hedge in the money market Larkin could borrow euron from the Frankfurt branch of its US bank at 9.87% per annum c. Hedge with foreign currency options August put options were available at strike price of $1 1400 for a prorlum of 19% per contract, and November put options were available at $1,14001 for a premium of 1,3% August call options at $1.1400/ could be purchased for premium of 2.8% and November call uptions at $1.1400 were available at a 2.7% premium d. Do nothing: Larkin could wait until the sales proceds were received in August and November, hope the recent strengthening of the euro would continue, and sell the a. How much in US dollars will Larion receive on November 1st with a forward market hode? Round to the nearest dohor) Enter your answer in the answer box and then click Check Answer By the time the order was received and booked on May 1, the euro had strengthened to 51.1400/, so the sale was in fact worth 64.600,000x 51.1400/=$5,244,000. Larkin had already gained an extra $230,000 from favorable exchange rate movementu. Nevertheless, Lardin's director of finance now wondered if the firm should hedge against a reversal of the recent trend of the euro. Four approaches were possible a. Hedge in the forward market The 3-month forward exchange quote was $1.14707 and the 6-month forward quote was $1.1540 b. Hedge in the money market: Larkin could borrow euros from the Frankfurt branch of its U.S. bank at 9.87% per annum c. Hedge with foreign currency options. August put options were available at strike price of $1.1400/ for a premium of 10% per contract, and Novembor pot options were available at $1.1400 for premium of 1.3% August call options at $1.1400/e could be purchased for a premium of 29%, and November call options at $1,14001 were available at a 27% premium d. Do nothing Larion could wait until the sales proceeds were received in August und November, hope the recent strengthening of the auto would continue, and sell the DUTOS received for dollar in the spot market Larkin estimates the cost of equity capital to be 14% per annum As a small fiem, Larkin Hydraulica is unable to raise funds with long-term debt. U.S. T-bil yield 3.8% pornhum What should Larkin do? How much in U.S. dollars will Linkin receive on November 1st with a forward market hedgo? Round to the nearest collar) Enter your answer in the snower box and then click Check Answer Date 14 CA

Answer & Explanation Solved by verified expert

See Answer