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international financing again !!!

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 Sanchay Maity CWA , CA - FINAL [ Scorecard : 98] 1) For imports from UK , Philadelphia Ltd of USA owes £650000 to London Ltd, payable on May 2004. It is now February 12, 2004. The following future contracts ( contract size £62500) are availabale on the Philadelphia exchange :                              Expiry                                          Current futures rate                           March                                                1.4900 \$/£                          June                                                    1.4960 \$/£ a) Illustrate how Philadelphia Ltd can use future contracts to reduce the transaction risk if, on 20 May the spot rate is 1.5030 \$/£ and June futures are trading at 1.5120 \$/£. The spot rate on 12 Feb is 1.4850 \$/£. b) Calculate the hedge efficiency. ( Ans - 85.5 %)     2) MN a UK company has a substantial portfolio of its trade with American and German Companies. it has recently invoiced a US customer the sum of \$ 50,00,000 recievable in one year's time. MN finance director is considering two methids of hedging the exchange risk : Method 1 -  Borrowing Present value of \$ 50,00,000 now for one year , converting the amount into sterling and repaying the loan out of the eventual receipts ( isint this money market hedge ?????---- this is my question.) Method 2 -  Entering into a 12 mth forward exchange contract with the company's bank to sell the \$ 50,00,000.   The spot rate of exchange is £1 = \$ 1.6355 The 12 mth forward rate of exchange  is £1 = \$ 1.6125 Interest rates for 12 mths are USA-3.5% and UK - 4% Reqd to calculate the net proceeds in sterling in both the methods. Ans - Method 2 is more suitable. ( implied forward rate in method 1 is 1.6276 )   3) Could u guys provide me good notes on IRP ( Interest Rate parity ) along with some worked out examples ?   Thanks .

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