Blades inc use of currency derivative instruments case summary

It is considering an order from a Japanese supplier that requires a payment of In general, options on the yen have required a pre-mium of about 1. He would like to use an exercise price that is about 5 percent above the ex-isting spot rate to ensure that Blades will have to pay no more than 5 percent above the existing spot rate for a transaction two months beyond its order date, as long as the option premium is no more than 1.

However, the firm would like to use currency options to hedge payables in Japanese yen for transactions two months in advance. Purchase one futures contract which represents Based on your assessment, you believe it is highly unlikely that the future spot rate will be more than two standard deviations above the ex-pected spot rate by the delivery date.

The table below summarizes the option and futures information available to Blades: Given this information, what is the expectation on the order date of the yen spot rate by the delivery date?

Hedging Strategies for Blade Inc using derivative products

Based on this expectation of the future spot rate, what is the optimal hedge for the firm? Use of currency derivative instruments using Excel. The table below summarizes the option and futures information available to Blades: It is located on pages Purchase two call options contracts since each op-tion contract represents 6, yen.

The interest of the firm is to safeguard against any adverse movement in price and take advantage of price movement in expected direction.

Assume that the firm shares the market consensus of the future yen spot rate. Use a spreadsheet to support your analysis of questions 4 and 6. In general, options on the yen have required a premiumof about 1.

As an analyst for Blades, you have been asked to offer insight on how to hedge. Why or why not? Given this expectation and given that the firm makes a decision i.

As an analyst for Blades, you have been asked to of-fer insight on how to hedge. Blades has two choices: Solution Summary Provides a detailed analysis of the case Blades Inc: The futures price on yen has historically exhibited a slight discount from the existing spot rate.

Nevertheless, the firm would be willing to remain unhedged if the yen becomes more stable someday. The volatility in the market has increases leading to higher cost of the option. Given this expectation and given that the firm makes a decision i.

Your answer should consist of one number. Blades would prefer hedging its yen payable position because it is uncomfortable leaving the posi-tion open given the historical volatility of the yen.

Nevertheless, the firm would be willing to remain un-hedged if the yen becomes more stable someday. Blades has two choices: He would like to use an exercise price that is about 5 percent above the existing spot rate to ensure that Blades will have to pay no more than 5 percent above the existing spot rate for a transaction 2 months beyond its order date, as long as the option premium is no more than 1.

I have attached a file with the case study for blades inc. It is considering an order from a Japanese supplier that requires a payment of However, the firm would like to use currency options to hedge payables in Japanese yen for transactions 2 months in advance.Use of Currency Derivative Instruments Blades, Inc., needs to order supplies 2 months ahead of the delivery ultimedescente.com is considering an order from a Japanese supplier that requires a payment of million yen payable as of the delivery date.

Provides a detailed analysis of the case Blades Inc: Use of currency derivative instruments using Excel. The case analysis helps students to understand various derivative instruments such as call options, spot market and future contracts and how these instruments can be used for building hedging strategy for the firm.

Chapter 5 Blades, Inc. Case Use of Currency Derivative Instruments Blades, Inc. needs to order supplies 2 months ahead of the delivery date. It is considering an order from a Japanese supplier that requires a payment of. Get an answer from tutors to this homework question now: Chapter 5 Blades, Inc.

Case Use of Currency Derivative Instruments Blades, Inc. needs to order supplies 2 months ahead of the delivery date.

It is considering an order from a Japanese supplier that requires a payment of million yen payable as of the delivery date.

Blades Inc. Case Study: Currency Derivative Instruments 1. Introduction Blades Inc. is an US based company which seeks to hedge its financial positions for purchases of Yen.

The company has the possibility to use either currency options or futures contracts as derivatives instruments for hedging purposes%(12). Case Use of Currency Derivative Instruments Blades, Inc. needs to order supplies 2 months ahead of the delivery date.

It is considering an order from a Japanese supplier that requires a payment of million yen payable as of the delivery date.

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Blades inc use of currency derivative instruments case summary
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