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International finance - hedging

 
 
Ivelina
 
Reply Mon 13 Apr, 2015 07:33 am
Hello friends,
if you have some ideas how to solve this /procedure, solution etc/, please share. (it doesn't matter to which question)

29.11.2012 importer signed a contract for delivery of products worth 1,000,000 EUR. 1st batch (worth 500,000 EUR) was delivered after 1 month and 2nd batch – after 2 months from the date the contact was signed. The deal was settled as follows: 10% of value of the contract was paid after 1 month from the date the contact was signed (right after delivery of 1st batch), 40% of value of the contract – after 3 months, the rest – after 6 months. Importer intended to hedge against currency risk all three payments and entered three DF contracts with chosen bank (or banks). The NBP average spot rate at the date the contract was signed and hedging deals were made was 3,9809 PLN/EUR. Importer’s banks quoted following PLN/EUR forward rates: bank A: 1M rate: 3,9890 – 3,9950, 3M rate: 4,0120 – 4,0200, 6M rate: 4,0385 – 4,0490; bank B: 1M rate: 3,9900 – 3,9960, 3M rate: 4,0110 – 4,0180, 6M rate: 4,0375 – 4,0485; bank C: 1M rate: 3,9910 – 3,9950, 3M rate: 4,0100 – 4,0180, 6M rate: 4,0365 – 4,0500. Because importer enjoyed appropriate renown and confidence no one of banks had demanded an initial margin for DF contracts. Importer settles currency differentials at the NBP average spot rate. Assume that value dates for DF contracts were the same as dates when importer’s account was charged with respective payments. Besides, assume that at the date the 1st batch was delivered to the importer the NBP average spot rat was 4,0055 PLN/EUR, at the date the 2nd batch was delivered to the importer: 4,0395 PLN/EUR, at the date importer’s account was charged of the amount of 2nd payment: 4,0550 PLN/EUR, at the date importer’s account was charged of the amount of 3rd payment: 4,0465.


Questions:
1) Which bank (or banks) was (or were) chosen by the importer to enter DF contracts and why (analyze separately every DF contract)?
2) How much totaled up currency differential revenues (or costs) in compliance with records in the books under assumption that importer had entered hedging contracts?
3) How much could have totaled up currency differential revenues (or costs) in compliance with records in the books under assumption that importer had not entered hedging contracts?
4) How much totaled up effective currency differential revenues (or costs) under assumption that importer had entered hedging contracts?
5) How much could have totaled up effective currency differential revenues (or costs) under assumption that importer had not entered hedging contracts?
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