Even complicated and confusing topics will be easily developed and covered if you request our help writing an essay. Place an order today!

Hedging using Foreign Currency DerivativesShiela Penny is the Chief Financial Officer [CFO] of SALEM Manufacturing, a U.S. based manufacturer of gas turbine equipment. She has just concluded negotiations for the sale of a turbine generator to Crown, a British firm for One million pounds. This single sale is quite large in relation to SALEM’s present business. SALEM has no other current foreign customers, so the currency risk of this sale is of particular concern. The sale is made in September with payment due three months later in December. Shiela Penny has collected the following financial market information for the analysis of her currency exposure problem:• Spot Exchange rate: $1.5640 per British pound.• Three month forward rate: $1.5549 per pound• SALEM’s cost of capital: 16%• U.K. Annual borrowing interest rate: 12.0% (or 3.0% per quarter)• U.K. Annual investment interest rate: 10.0% (or 2.5% per quarter)• U.S. Annual borrowing interest rate: 12.0% ( or 3.0% per quarter)• U.S. Annual investment interest rate: 8.0% (or 2.0% per quarter)• December put option in the over-the-counter (bank) market for 1,000,000 British pounds;Strike price $1.55 (nearly at-the money) 1.5% premium• December put option in the over-the counter (bank) market for 1,000,000 British pounds:Strike price $1.51 (out-of-the money) 1.0% premium• SALEM’s foreign exchange advisory service forecasts that the spot rate in there months will be $1.56 per British pound.Like many manufacturing firms, SALEM operates on relatively narrow margins. Although Ms. Penny and SALEM would be very happy if the pound appreciated versus the dollars, concerns center on the possibility that the pound will fall. When Ms. Penny budgeted this specific contract, she determined that the minimum acceptable margin was at a sale price of $1,500,000. The budget rate, the lowest acceptable dollar per pound exchange rate, was therefore established at $1.5 per British pound. Any exchange rate below would result in SALEM actually losing money on the transaction.Four alternatives are available to SALEM to manage the exposure:1. Remain un-hedged.2. Hedge in the forward market.3. Hedge in the money market.4. Hedge in the options market. What should SALEM do?

Hedging using Foreign Currency DerivativesShiela Penny is the Chief Financial Officer [CFO] of SALEM Manufacturing, a U.S. based manufacturer of gas turbine equipment. She has just concluded negotiations for the sale of a turbine generator to Crown, a British firm for One million pounds. This single sale is quite large in relation to SALEM’s present business. SALEM has no other current foreign customers, so the currency risk of this sale is of particular concern. The sale is made in September with payment due three months later in December. Shiela Penny has collected the following financial market information for the analysis of her currency exposure problem:• Spot Exchange rate: $1.5640 per British pound.• Three month forward rate: $1.5549 per pound• SALEM’s cost of capital: 16%• U.K. Annual borrowing interest rate: 12.0% (or 3.0% per quarter)• U.K. Annual investment interest rate: 10.0% (or 2.5% per quarter)• U.S. Annual borrowing interest rate: 12.0% ( or 3.0% per quarter)• U.S. Annual investment interest rate: 8.0% (or 2.0% per quarter)• December put option in the over-the-counter (bank) market for 1,000,000 British pounds;Strike price $1.55 (nearly at-the money) 1.5% premium• December put option in the over-the counter (bank) market for 1,000,000 British pounds:Strike price $1.51 (out-of-the money) 1.0% premium• SALEM’s foreign exchange advisory service forecasts that the spot rate in there months will be $1.56 per British pound.Like many manufacturing firms, SALEM operates on relatively narrow margins. Although Ms. Penny and SALEM would be very happy if the pound appreciated versus the dollars, concerns center on the possibility that the pound will fall. When Ms. Penny budgeted this specific contract, she determined that the minimum acceptable margin was at a sale price of $1,500,000. The budget rate, the lowest acceptable dollar per pound exchange rate, was therefore established at $1.5 per British pound. Any exchange rate below would result in SALEM actually losing money on the transaction.Four alternatives are available to SALEM to manage the exposure:1. Remain un-hedged.2. Hedge in the forward market.3. Hedge in the money market.4. Hedge in the options market. What should SALEM do?

Hedging using Foreign Currency DerivativesShiela Penny is the Chief Financial Officer [CFO] of SALEM Manufacturing, a U.S. based manufacturer of gas turbine equipment. She has just concluded negotiations for the sale of a turbine generator to Crown, a British firm for One million pounds. This single sale is quite large in relation to SALEM’s present business. SALEM has no other current foreign customers, so the currency risk of this sale is of particular concern. The sale is made in September with payment due three months later in December. Shiela Penny has collected the following financial market information for the analysis of her currency exposure problem:• Spot Exchange rate: $1.5640 per British pound.• Three month forward rate: $1.5549 per pound• SALEM’s cost of capital: 16%• U.K. Annual borrowing interest rate: 12.0% (or 3.0% per quarter)• U.K. Annual investment interest rate: 10.0% (or 2.5% per quarter)• U.S. Annual borrowing interest rate: 12.0% ( or 3.0% per quarter)• U.S. Annual investment interest rate: 8.0% (or 2.0% per quarter)• December put option in the over-the-counter (bank) market for 1,000,000 British pounds;Strike price $1.55 (nearly at-the money) 1.5% premium• December put option in the over-the counter (bank) market for 1,000,000 British pounds:Strike price $1.51 (out-of-the money) 1.0% premium• SALEM’s foreign exchange advisory service forecasts that the spot rate in there months will be $1.56 per British pound.Like many manufacturing firms, SALEM operates on relatively narrow margins. Although Ms. Penny and SALEM would be very happy if the pound appreciated versus the dollars, concerns center on the possibility that the pound will fall. When Ms. Penny budgeted this specific contract, she determined that the minimum acceptable margin was at a sale price of $1,500,000. The budget rate, the lowest acceptable dollar per pound exchange rate, was therefore established at $1.5 per British pound. Any exchange rate below would result in SALEM actually losing money on the transaction.Four alternatives are available to SALEM to manage the exposure:1. Remain un-hedged.2. Hedge in the forward market.3. Hedge in the money market.4. Hedge in the options market. What should SALEM do?

Hedging using Foreign Currency DerivativesShiela Penny is the Chief Financial Officer [CFO] of SALEM Manufacturing, a U.S. based manufacturer of gas turbine equipment. She has just concluded negotiations for the sale of a turbine generator to Crown, a British firm for One million pounds. This single sale is quite large in relation to SALEM’s present business. SALEM has no other current foreign customers, so the currency risk of this sale is of particular concern. The sale is made in September with payment due three months later in December. Shiela Penny has collected the following financial market information for the analysis of her currency exposure problem:• Spot Exchange rate: $1.5640 per British pound.• Three month forward rate: $1.5549 per pound• SALEM’s cost of capital: 16%• U.K. Annual borrowing interest rate: 12.0% (or 3.0% per quarter)• U.K. Annual investment interest rate: 10.0% (or 2.5% per quarter)• U.S. Annual borrowing interest rate: 12.0% ( or 3.0% per quarter)• U.S. Annual investment interest rate: 8.0% (or 2.0% per quarter)• December put option in the over-the-counter (bank) market for 1,000,000 British pounds;Strike price $1.55 (nearly at-the money) 1.5% premium• December put option in the over-the counter (bank) market for 1,000,000 British pounds:Strike price $1.51 (out-of-the money) 1.0% premium• SALEM’s foreign exchange advisory service forecasts that the spot rate in there months will be $1.56 per British pound.Like many manufacturing firms, SALEM operates on relatively narrow margins. Although Ms. Penny and SALEM would be very happy if the pound appreciated versus the dollars, concerns center on the possibility that the pound will fall. When Ms. Penny budgeted this specific contract, she determined that the minimum acceptable margin was at a sale price of $1,500,000. The budget rate, the lowest acceptable dollar per pound exchange rate, was therefore established at $1.5 per British pound. Any exchange rate below would result in SALEM actually losing money on the transaction.Four alternatives are available to SALEM to manage the exposure:1. Remain un-hedged.2. Hedge in the forward market.3. Hedge in the money market.4. Hedge in the options market. What should SALEM do?

testimonials icon
Described in the attached file.Attachments: ...
testimonials icon
Read the "Which approach is Best" that is attached. Develop a 1 page response based on the question included to support your position....
testimonials icon
Choose one topic from your philosophy. 2. Discuss this topic in relation to your own field of Nursing and one other field of Nursing....
testimonials icon
If you want to have $300,900 in 17 years, how much money should you put in a savings account today. Assume that...
testimonials icon
CJA 214 Week 5 Police Operations Paper...
testimonials icon
ADVA407 Week 4 Assignment 2 Conversion Goals and Marketing Fu...
testimonials icon
read the article titled “How Barbie Lost her Groove,” by Nash and Duvall (2005). Compose a persuasive response that includes the following elem...
testimonials icon
Centuries ago, women’s positions were inside the home, either in motherhood or with domestic labo...
testimonials icon
1. The ADA is the prirnary legislation protecting persons with disabilities. Think about a sport organization with which you are familiar....
testimonials icon
Managing Classroom ChallengesIn every learning environment, instructors are faced with a multitude of challenges regardless...

Other samples, services and questions:

Calculate Price

When you use PaperHelp, you save one valuable — TIME

You can spend it for more important things than paper writing.

Approx. price
$65
Order a paper. Study better. Sleep tight. Calculate Price!
Created with Sketch.
Calculate Price
Approx. price
$65