FIN4802 Assignment 1 Semester 1 2026 - Due 21 May 2026

FIN4802 Assignment 1 Semester 1 2026 – Due 21 May 2026

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FIN4802 ASSIGNMENT 1 2026
DUE 21 MAY 2026
QUESTION 1
1. Assume that Jones Corp. (a U.S. firm) expects to receive 1 million Euros in 1 year.
The spot rate of the Euro is $1.20. The 1-year forward rate of the Euro is $1.21. Jones
expects the spot rate of the Euro to be $1.22 in 1 year. Assume that 1-year options on
Euros are available, with an exercise price of $1.23 and a premium of $0.04 per unit.
Assume the following money market rates:

(a) Determine the dollar cash flows to be received if Jones uses a money market
hedge (Assume Jones does not have any cash on hand)
Receivable: €1,000,000 in 1 year.
Money market rates: Eurozone borrowing = 6%; US deposit = 8%.
Spot rate: $1.20/€.
Present value of the receivable in euros
PV€ = 1,000,0001+0.06 = 1,000,0001.06 = €943,396.23PV€ = 1+0.061,000,000

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FIN4802 ASSIGNMENT 1 2026
DUE 21 MAY 2026
QUESTION 1
1. Assume that Jones Corp. (a U.S. firm) expects to receive 1 million Euros in 1 year.
The spot rate of the Euro is $1.20. The 1-year forward rate of the Euro is $1.21. Jones
expects the spot rate of the Euro to be $1.22 in 1 year. Assume that 1-year options on
Euros are available, with an exercise price of $1.23 and a premium of $0.04 per unit.
Assume the following money market rates:

(a) Determine the dollar cash flows to be received if Jones uses a money market
hedge (Assume Jones does not have any cash on hand)
Receivable: €1,000,000 in 1 year.
Money market rates: Eurozone borrowing = 6%; US deposit = 8%.
Spot rate: $1.20/€.
Present value of the receivable in euros
PV€ = 1,000,0001+0.06 = 1,000,0001.06 = €943,396.23PV€ = 1+0.061,000,000

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Description

FIN4802 ASSIGNMENT 1 2026
DUE 21 MAY 2026
QUESTION 1
1. Assume that Jones Corp. (a U.S. firm) expects to receive 1 million Euros in 1 year.
The spot rate of the Euro is $1.20. The 1-year forward rate of the Euro is $1.21. Jones
expects the spot rate of the Euro to be $1.22 in 1 year. Assume that 1-year options on
Euros are available, with an exercise price of $1.23 and a premium of $0.04 per unit.
Assume the following money market rates:

(a) Determine the dollar cash flows to be received if Jones uses a money market
hedge (Assume Jones does not have any cash on hand)
Receivable: €1,000,000 in 1 year.
Money market rates: Eurozone borrowing = 6%; US deposit = 8%.
Spot rate: $1.20/€.
Present value of the receivable in euros
PV€ = 1,000,0001+0.06 = 1,000,0001.06 = €943,396.23PV€ = 1+0.061,000,000

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