Find Related Questions by Tags, levels, etc.
Accra Food and Beverage Co has recently imported raw materials from Japan with an invoice value of US$264,000 payable in three months’ time. Due to the company’s efficient production capacity, it has finished products and exported finished products to France. Consequent to this, the French customer has been invoiced for US$75,000 payable in three months’ time. Below is the current spot and forward rates for the transactions:
| USD/GHS | Spot | 3 Months Forward |
|---|---|---|
| 0.9850-0.9870 | 0.9545-0.9570 |
Current money market rates per annum are as follows:
| Currency | Borrowing | Deposits |
|---|---|---|
| US$ (USD) | 11% – 13.2% | 2.7% |
| GH₵ (GHS) | 12.7% – 14.3% | Not provided |
Required:
Demonstrate with relevant calculations how Accra Food and Beverage Co can hedge its exposure to foreign exchange risk using:
(a) The forward markets
(b) The money market
Find Related Questions by Tags, levels, etc.
BritCo Ltd expects to receive $600,000 in six months’ time from a customer. It intends to convert these dollars into sterling.
The current spot rate for the dollar against sterling (GBP/USD) is 1.8800. The six-month interest rates are 5% per year for sterling and 3.5% per year for the US dollar.
Required
(a) Show how BritCo Ltd can create a money market hedge for its exposure to a fall in the value of the dollar.
(b) Estimate what the exchange rate should be for a six-month forward contract, GBP/USD.
Find Related Questions by Tags, levels, etc.
(a) Kofi borrowed GH¢120,000 for eight months at 15% simple interest per annum. How much interest would he pay?
Compute the annual rate of interest that, if compounded continuously monthly, would result in the payment of the same amount of interest.
(b) Ama paid GH¢500,000 into a fund which yielded 8% per annum compounded annually.
How much amount will she have in the fund after 10 years?
(c) At the start of each 6 month period for 7 years Kwame paid GH¢25,000 into a fund earning annual interest at 6% compounded semi-annually.
What amount would be in the fund at the end of 7 years?
(d) Yaw deposited an amount into a bank which will be doubled in eight years. Find the rate of interest on the basis that the amount is compounded annually.
(e) How much should Adwoa deposit now to yield GH¢600,000 at the end of five years at 10% per annum simple interest?
(f) How much should Esi deposit now to yield GH¢600,000 at the end of five years at 10% per annum compound interest?
(g) How much should Kwesi deposit now to yield GH¢600,000 at the end of five years at an annual interest of 10% compounded half yearly?
(h) Nii wants to purchase an annuity that will provide GH¢6,000 per annum at the end of each year for 10 years.
How much will he need to invest in a fund with a return of 6% per annum?
How much interest would he earn over the period of 10 years?
(i) Two years ago, Apex Limited borrowed an amount at an annual interest rate of 10%. The amount of the loan today is GH¢100,000 and the final amount will be paid back in four years.
Apex Limited is to set up a sinking fund which yields a return of 8% per annum compounded quarterly (by parts).
How much will Apex Limited need to deposit at the end of each quarter, in the sinking fund, to settle the loan at the end of four years?
(j) Star Limited wants to invest equal annual amounts in a bank for five years starting from January 1, 20X1 in order to have the following amounts available:
Find Related Questions by Tags, levels, etc.
Elevate your professional expertise across key business domains with our comprehensive training programs
Follow us on our social media and get daily updates.
This feature is only available in selected plans.
Click on the login button below to login if you’re already subscribed to a plan or click on the upgrade button below to upgrade your current plan.
If you’re not subscribed to a plan, click on the button below to choose a plan