FIN 435 MODULE 8 CHAPTER 10 HOMEWORK ANSWER / FIN 435 Module 8 Chapter 10 Homework Problem 3 (answered) 2021

FIN 435 Module 8 Chapter 10 Homework Problem 3 Siam Cement, the Bangkok-based cement manufacturer, suffered enormous losses with the coming of the Asian crisis in 1997. The Company had been pursuing a very aggressive growth strategy in the mid1990’s, taking on massive quantities of foreign- currency-denominated debt (primarily U.S. dollars) When the Thai baht (B) was devalued from its pegged rate of B25.0/$ in July 1997, Siam’s interest payments alone were over $900 million on its outstanding dollar debt (with an average interest rate of 8.40% on its U.S dollar debt at that time). Assuming Siam Cement took out $50 million in Debt in June 1997 at 8.40% interest, and had to repay it in one year when the spot exchange rate had stabilized at B42.0/$ what was the foreign exchange loss incurred on the transaction Blackboard Problem Given the following facts, complete problems A and B below:  Spot rate – $2/£  3 month Forward rate – $1.98/£  3 month U.K. (U.S.) interest rate – 4% (3%) per year.  3 month put contract with a strike price of $1.99/£ with a 4% premium  3 month call option with a strike price of $1.99/£ with a 3.5% premium A) How would company ABC hedge a £200 million receivable? Which alternative would you pick? B) How would company ABC hedge a £400 million payable? Which alternative would you pick?