Solving the numerical only.Document Preview:Assignment Questions Portfolio Foreign Exchange & Interest rate Management Word limit: 1500 words Part 2 (50 marks) Question 1 (total 20 marks) Fantastic Opportunities, a UK plc is expanding its operations into France, and is building a distribution warehouse near Nice. It has to make the final payment for the construction of 700,000 euros in three months time. Foreign exchange and money market rates available to the company are shown below: Euros/? Bid Offer Spot 1.38981.3965 Three months forward 1.32991.3384 (NB. Above are indirect quotes from UK perspective). Borrowing Lending Euro 7% 4.5% Sterling 9% 6.25% Explain what strategies Fantastic Opportunities plc might adopt to protect itself against transaction exposure? (Show all relevant calculations). Question 2 (total 15 marks) Bens Beers have recently fulfilled export orders to France and Denmark for a variety of British beers. The Danish customer has been invoiced for DKr 8,000,000 and is due to pay in one month, while the French customer has been invoiced Euro 50,000,000 and is also due to make payment in one month. Relevant exchange and interest rates are set out below: DKr/? Euro/? Spot 0.091998 0.6300 1 month forward 0.092221 0.6290 2 month forward 0.092392 0.6280 3 month forward 0.092614 0.6270 (N.B. Above are direct bid quotes from UK perspective) Money Market rates (per annum % ) Deposit Borrowing UK domestic bank 4 5 Danish domestic bank 3.75 4 French domestic bank 3.8 3.95 (Euro rate) Euro sterling 4.5 4.75 (a) Identify, using the information above, whether the money market or forward market hedge would be best strategy for Bens for: (i) their Danish exposure; and (ii) their French exposure. Assume that all payments will be received on time. (10 marks) (b) Based upon past experience the French company will pay on time, while the Danes will pay up to one month late. Explain what a forward option is, and illustrate how it Attachments: Portfolio-ass.docx
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