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MANAGERIAL EMPHASIS
❂ What do we do now?
• Calculate the price in a common currency (US$
would be logical since you are US based).
❂ How do we do that?
• Get the price in local currency (LCP) for each
location from the table.
• Divide the LCP by the LC/US$ exchange rate to
get the US$ Price. See Table 2.1/2.2 or
http://www.bmo.com/economic/.
Gray, Salter & Radebaugh
Chapter 2
Lets look at 2.1 First
❂ it’s a word file
1.65
US$/GBP
1.55
1.5
J an- Feb- Mar- Apr- May- J un- J ul- A Sep-
99 99 99 99 99 99 99 ug- 99
99
Gray, Salter & Radebaugh
Mont h
Chapter 2
FOREIGN EXCHANGE RISKS AND
SOLUTIONS - Import for Credit Problem
❂ You can neutralize the
risk of the British £
changing in value by
using a derivative.
❂ FX Derivatives can
include forward
contracts, futures,
swaps and options.
$1,050
Gray, Salter & Radebaugh
Chapter 2
A TYPICAL OPTION SCENARIO
$775,000
Option Cost 16 contracts
$16,800
Additional admin. fees
on exercising $400
Total $792,200
Gray, Salter & Radebaugh
Chapter 2
Option Scenario : Benefits