Example 1

Pay USD 250,000

Selling rate 0.7785
. 0.0021
Forward rate 0.7764

AUD 321,999

Example 2
Pay USD 171,000 in 3 months
Money Market Forward
Asset USD 166,829 US$171,000/0.9520
Selling rate 0.983 = €179,622
Euro borrowing 169,714
Cost in Euros 175,230

Receipt of AUD 295,000 in 4 months

Money Market Forward
Liability AUD 280,063 A$295,000 × 1.9510
Buying rate 1.889 = €575,545 Solution - Example 8A Solution - Example 8B
Euro deposit 529,040 Pay $ 350,000 Receive $ 275,000
Rcpt in Euro 549,319 Call $ options. Contract is in pounds. Put sterling options Put $ options. Contract is in sterling. Call sterling options

Example 3 350,000/1.5 = 233,333 275,000/1.5 =183,333

Pay USD 12,000,000 25,000 25,000
Future rate 1.3350 9.33 7.33
Pay Euro 8,988,764 9 contracts 7 contracts
Contract size € 200,000
No of contracts 45 Cents 12.4 x 25,000 x 9 = 27,900 USD Cents 8 x 25,000 x 7 = 14,000 USD
You have to pay USD, thus buy USD and sell Euros. The Selling rate 1.5190 Selling rate 1.5190
contract is in Euro. So sell 45 Euro futures. Sterling 18,367 Sterling 9,217
$ / Euro With opportunity cost 18,918 With opportunity cost 9,770
Sold at 1.3350
Bought at (1.3240) Should option be excercised? Should option be excercised?
Gain 0.0110 USD Exchg rate Sterling USD Exchg rate Sterling
Spot 350,000 1.4810 236,327 Spot 275,000 1.5285 179,915
Total gain = gain x no. of contracts x contract size Options 350,000 1.5000 233,333 Yes Options 275,000 1.5000 183,333 Yes
= $ 99,000
$ Exchg rate Sterling $ Exchg rate Sterling
Thus net payment $ 11,901,000 Option excercised 337,500 1.5000 225,000 Option excercised 262,500 1.5000 175,000
Spot at 20 Nov 1.3190 Deficit 12,500 1.4810 8,440 Deficit 12,500 1.5285 8,178
Euro net payment 9,022,745 350,000 275,000
Option cost 18,918 Option cost (9,770)
Example 4 252,358 173,408
Receipt USD 2,000,000
Example 9
Contract size $ 200,000 Paying
No of contracts 10 Receiving A B C D
You will receive USD, thus sell USD and buy SFr. The contract is A USD 10m USD 20m
in $. So sell 10 USD futures. B Euro 45m Euro 15m
S Fr / USD C CHF 20m CHF 10m
Sold at 1.2200 D Sterling 10m
Bought at (1.2760)
Loss (0.0560) Paying (USD m)
Receiving A B C Total
Total loss = loss x no. of contracts x contract size A 10 20 30
= fr. -112,000 B 60 60
C 16 16
Spot at 20 Nov 1.2750 Payments (60) (26) (20) (106)
SFr receipt $ 2,550,000 Rcpts 30 60 16
SFr total receipt 2,438,000 Net (30) 34 (4)