Finance and AccountingInternational finance

Finance and AccountingInternational finance
1. Suppose a company expects to receive 50 million euros in three months from now and enters into a cash settlement currency forward to exchange these euros for US dollars at USD 1.03 per euro. If the market exchange rate is USD 1.05 per euro at settlement, what is the amount of the payment to be received or paid by company?

2. a) Suppose a call option has a strike price of $50. Compute the intrinsic value of this option for stock prices of $55,$50, $45
b)Assume an investor bought a 60 day call option on 90 day LIBOR with a notional principal of $1 million and a strike rate of 5%. Compute the payment that the investor will receive if 90-day LIBOR is 6% at contract expiration, and determine when the payment will be received.

3. Suppose that the current price of an equity stock is $52 and the risk-free rate is 5%. Imagine you have found the quote for a 3 month put option with an exercise price of $50, and the put price is $1.50 but due to light trading in the call options, there was not a listed quote for the 3 month $50 call. Show your calculation of an estimate for the price of the 3 month call option.
4. Suppose in a particular year the annual interest rate is 6.5% in the UK and 5,2% in the USA.
a) If the current exchange rate is $1.61: 1 pound, what would you expect the future exchange rate to be in one years time ?
b) Suppose a change in expectations regarding future US inflation causes the expected future spot rate to decline to $1.52: 1pound. Calculate what you would expect to happen to the US interest rate and explain your results.
5. Assuming the euro currently trades at $1.0231, the dollar risk-free rate is 4%, and the euro risk-free rate is 5%. If six-month forward contracts are quoted at a rate of $1.0225, indicate how you might earn a risk-free profit by engaging in a forward contract. Clearly outline the steps you undertake to earn this risk-free profit.

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