Question: Scenario 2 (Pandemic): The Expected Volume Of US Sales In 2020 Is 1250 Kits Assume, In Each Scenario, That The Average Sales Price Per Kit Is $12.50 And That All Sales Are Realized At The End Of December 2020. Cost Of Producing Each Kit = $4.50 US Dollars Shipping Cost Per Kit = $2.75 US Dollars Assume All Costs Are Paid At The End Of The Year. The …

businessfinancefinance questions and answersScenario 2 (Pandemic): The Expected Volume Of US Sales In 2020 Is 1250 Kits Assume, In Each …Question: Scenario 2 (Pandemic): The Expected Volume Of US Sales In 2020 Is 1250 Kits Assume, In Each Scenario, That The Average Sales Price Per Kit Is $12.50 And That All Sales Are Realized At The End Of December 2020. Cost Of Producing Each Kit = $4.50 US Dollars Shipping Cost Per Kit = $2.75 US Dollars Assume All Costs Are Paid At The End Of The Year. The ….Scenario 2 (Pandemic): the expected volume of US sales in 2020
is 1250 kits
Assume, in each scenario, that the average sales price per kit
is $12.50 and that all sales are realized at the end of December
2020.
Cost of producing each kit = $4.50 US dollars
Shipping cost per kit = $2.75 US dollars
Assume all costs are paid at the end of the year.
The current spot exchange rate is (bid-ask) $0.76/C$ – $0.78/C$
and forward bid-ask is $0.70/C$ – $0.71/C$. For simplicity, assume
that (for both call and put) option premium is C$0.025, and option
strike price is C$1.295. You are allowed to hedge costs and
revenues separately.
The 1-year forecasts for December 2020: • bid-ask will be
$0.68/C$ – $0.69/C$ if the investors (and speculators) consider the
U.S. dollar ($) a safe haven currency during the pandemic.
• bid-ask will be $0.81/C$ – $0.82/C$ if the investors (and
speculators) consider the Canadian dollar (C$) a safe haven
currency during the pandemic
QUESTION

1) Assume that the Scenario 2 (Pandemic) took place in 2020 and
the U.S. dollar became a safe haven currency during the pandemic.
What are your cash flows (profits) if you
a) do not hedge the exchange rate risk?
b) hedge the exchange rate risk using forward contracts?
c) hedge the exchange rate risk using options contracts?
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Solution: Calculation of Profit from Sales during the year: Sales Unit = 2500 units * 50% = 1250 Junior Genius Kits Average Sales Price = $12.50 Less: Cost of Kit = $ 4.50 Less: Shview When you order professional assignments here, you will get: Original custom papers. We value your academic reputation. Just as well, we value the years of thorough work on our reputation for reliability and never compromise the originality of delivered papers. We will never endanger both. Every custom assignment is written from zero – the only possible first stage of work on the order is research. We apply the latest plagiary checking tools on the final stage, so plagiarism has no chance to emerge in your college assignment writing. Control over the order completion. To make the process of collaboration comfortable and efficient, we offer our clients to choose the writer themselves taking into account all the requirements and the budget. 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