if case

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Thailand United Kingdom Cash inflow in 90 days denominate

Current Spot rate 0.023 1.5 No. of pairs sold to Thai importers

90-day forward rate 0.0215 1.49 Price of per pair

Put option premium 0 0.02 Amount of Thai Baht to be receive

Put option exercise price 0 1.47 Cash outflow in 90 days denomina

Call option premium 0 0.015 No. of pairs manuactured

Call option exercise price 0 1.48 Cost of import per pair

90-day borrowing rate

(Nonannualized) 4% 2% Amount of Thai Baht to be paid in

90 day lending rate

(nonannualized) 3.50% 1.80% Net inflow (outflow) denominated

90 day borrowing rate in

US 2.30%

90 days lending rate in

US 2.10%

Probability

Spot ratefor the

british

pound in

Spot rate for the

Thai Baht in 90 days

5% 1.45 0.02

20% 1.47 0.0213

30% 1.48 0.0217

25% 1.49 0.022

15% 1.5 0.023

5% 1.52 0.0235

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d in Thai Baht Question 1:

45,000 Hedging the payable

4594

206,730,000.00 Forward contract

ed in Thai Baht Dollars to be paid in 90 days 1,161,000.00

18000

3000 Money market hedging

54,000,000.00 Thai baht required in 1 year 54,000,000.00

152,730,000.00 Lending rate 3.50%

Thai baht to be invested now 52,173,913.04

Dollar required to be borrowed 1,200,000.00

Amount to be paid on the borrowe 1,227,600.00

No hedge

Probability Dollar required

0.05 1,080,000.00

0.2 1,150,200.00

0.3 1,171,800.00

0.25 1,188,000.00

0.15 1,242,000.00

0.05 1,269,000.00

Expected value 1,182,330.00

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Hedging the Receivable

Forward contract

Dollars to be received in 90 days 3,283,695.00

Money-market hedging

Thai baht receivable in 90 days 152,730,000.00

Loan to be taken in thai baht 146,855,769.23

Dollars received now 3,377,682.69

amount of invested dollar in 90 days 3,448,614.03

No hedge

Dollars to be received Probability*Value

3,054,600.00 152,730.00

3,253,149.00 650,629.80

3,314,241.00 994,272.30

3,360,060.00 840,015.00

3,512,790.00 526,918.50

3,589,155.00 179,457.75


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Question 2 3. Put option

Premium 0.02

Pairs to be exported to Britain 50000 Exercise price 1.47

Price in pound 80 Scenario Probability

Total Receivables 4,000,000.00 1 5%

2 20%

Hedging the receivables 3 30%1. Forward contract 4 25%

Dollars to be received in 90 days 5,960,000.00 5 15%

6 5%

2. Money market hedging

Pounds to be received 4,000,000.00

Loan to be taken in pound now 3,921,568.63 4. No hedging

Dollars to be received now 5,882,352.94 Scenario Probability

Dollars to be received in 1 year 6,005,882.35 1 5%

2 20%

3 30%

4 25%

5 15%

6 5%

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Spot Price Premium Exercise Dollars received Total dollars to be received

1.45 0.02 yes 1.45 5,800,000.00

1.47 0.02 yes 1.45 5,800,000.00

1.48 0.02 no 1.46 5,840,000.001.49 0.02 no 1.47 5,880,000.00

1.50 0.02 no 1.48 5,920,000.00

1.52 0.02 no 1.50 6,000,000.00

Expected value

Spot Price Dollars to be received Pi*Xi

1.45 5,800,000.00 290,000.00

1.47 5,880,000.00 1,176,000.00

1.48 5,920,000.00 1,776,000.00

1.49 5,960,000.00 1,490,000.00

1.50 6,000,000.00 900,000.00

1.52 6,080,000.00 304,000.00


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Pi*Xi

290,000.00

1,160,000.00

1,752,000.001,470,000.00

888,000.00

300,000.00

5,860,000.00

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Assumptions

Scenario 1 2

Value of Baht 0.022 0.0209

Value of Pound 1.53 1.485

Scenario 1 Scenario 2

SalesU.S.A (520,000 pairs@$120) 62,400,000.00 62,400,000.00

Thailand (180,000 pairs@4594 baht) 18,192,240.00 17,282,628.00

UK (200,000 pairs @80 pounds) 24,480,000.00 23,760,000.00

Total sales in USD 105,072,240.00 103,442,628.00

COGS

Total Manufactured units 900,000.00

COGS incurred in Thailand for units 80,000.00

COGS incurred in USA for units 820,000.00

COGS in Thailand (80,000 pairs @ 3000 baht) 5,280,000.00 5,016,000.00

COGS in USA (820000 pairs @ $70) 57,400,000.00 57,400,000.00

Total COGS in USD 62,680,000.00 62,416,000.00

Operating Expenses

Fixed cost in USD 2,000,000.00 2,000,000.00

Variable cost in USD (11% of US Sales) 6,864,000.00 6,864,000.00

Total 8,864,000.00 8,864,000.00

Net Cash Flow 33,528,240.00 32,162,628.00

Change in Cash flow considering scenario 1 as base case - 4%

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3

0.0198

1.5 Assumptions

Scenario

Scenario 3 Value of Baht

Value of Pound62,400,000.00

16,373,016.00

24,000,000.00 Sales

102,773,016.00 U.S.A (520,000 pairs@$120)

Thailand (180,000 pairs@4594 baht)

UK (200,000 pairs @80 pounds)

Total sales in USD

COGS

4,752,000.00 Total Manufactured units

57,400,000.00 COGS incurred in Thailand for units

62,152,000.00 COGS incurred in USA for units

COGS in Thailand (80,000 pairs @ 3000 baht)

COGS in USA (820000 pairs @ $70)

2,000,000.00 Total COGS in USD

6,864,000.00

8,864,000.00 Operating Expenses

31,757,016.00 Fixed cost in USD

5% Variable cost in USD (11% of US Sales)

Total

Net Cash Flow

Change in Cash flow considering scenario 1 as base case

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1 2 3

0.022 0.0209 0.0198

1.5 1.425 1.35

Scenario 1 Scenario 2 Scenario 3

62,400,000.00 62,400,000.00 62,400,000.00

18,192,240.00 17,282,628.00 16,373,016.00

24,000,000.00 22,800,000.00 21,600,000.00

104,592,240.00 102,482,628.00 100,373,016.00

900,000.00

80,000.00

820,000.00

5,280,000.00 5,016,000.00 4,752,000.00

57,400,000.00 57,400,000.00 57,400,000.00

62,680,000.00 62,416,000.00 62,152,000.00

2,000,000.00 2,000,000.00 2,000,000.00

6,864,000.00 6,864,000.00 6,864,000.00

8,864,000.00 8,864,000.00 8,864,000.00

33,048,240.00 31,202,628.00 29,357,016.00

- 6% 11%

if case

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