Exam (elaborations)
FIN 494 Final Exam Prepared_2020 | FIN494 Final Exam Prepared_Graded A
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FIN 494 Final Exam Prepared_2020 3,4,6 10check 15 Exchange rate is currently $0.7 US per 1 Canadian Dollar. Interest rate is 2% in the US and 1% in Canada. A bank is short a futures contract on 1,000,000 Canadian Dollars with F= $0.75 per unit, maturing in one year. What position should the bank take to hedge the currency risk? Delta is position size discounted by the foreign interest rate. It should be negative because the bank is short. Delta = - 1,000,000 / 1.01 = -990,099 To hedge, the bank should buy 990,099 CAD Borrow 990,099 * 0.7 = $693,069 U.S. to purchase the necessary CAD amount a. Borrow $735,294 US Borrow $693,069 US b. Borrow $
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Institution
University Of Illinois - Chicago
Course
Finance (FIN494)
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Written for
- Institution
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University Of Illinois - Chicago
- Course
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Finance (FIN494)
Document information
- Uploaded on
- April 28, 2021
- Number of pages
- 31
- Written in
- 2020/2021
- Type
- Exam (elaborations)
- Contains
- Questions & answers
Subjects
- 000
- 000 canadian doll
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fin 494 final exam prepared2020
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exchange rate is currently 07 us per 1 canadian dollar interest rate is 2 in the us and 1 in canada a bank is short a futures contract on 1
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