Polytot June 04 Mark FieldingPritchard mefielding com 1

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Polytot June 04 Mark Fielding-Pritchard mefielding. com 1

Polytot June 04 Mark Fielding-Pritchard mefielding. com 1

Polytot Simply work through the options in order There as a peso/£ rate given

Polytot Simply work through the options in order There as a peso/£ rate given so assume we can use it Receive US$ Pesos (675 mx 60%) /98. 2= $4, 124, 236 270 m 179. 745 (156. 30 x 1. 15)= £ 1, 502, 128 Therefore we are hedging $4, 124, 236 mefielding. com 2

Polytot- Forward Therefore we are hedging $4, 124, 236 A receipt in 4 months

Polytot- Forward Therefore we are hedging $4, 124, 236 A receipt in 4 months Question give you 3 month rate and 1 year rate , extrapolate 1. 5398 - 1. 5178 = decline of 2. 2 c over 9 months. Therefore 1 month = 0. 24 c 4 month rate is 1. 5398 - 0. 0024= 1. 5374 4, 124, 236/1. 5374= £ 2682604 mefielding. com 3

Polytot Options Now is 1 July, receive money on 1 November- December September expies

Polytot Options Now is 1 July, receive money on 1 November- December September expies too soon, March is too expensive We need to take dollars and buy pounds- calls 1. 5250 . 0335 15585 1. 5500 . 0225 15725 1. 5750 . 0140 15890 1. 6000 . 0075 16075 4, 124, 236/1. 5250= £ 2704417/31250= 86 contracts mefielding. com Therefore on 1 July we buy 86 December Calls with a strike price of $1. 5250 4

Polytot Options contd 1 July Premium cost = $0. 335 x 31250 x 86=

Polytot Options contd 1 July Premium cost = $0. 335 x 31250 x 86= $90031/ 1. 5475 = £ 58179 (ignore time cost of money) Assuming spot on 1/11 is 1. 5374 we will exercise $ £ What we receive on exercise of option $(1. 525 x 31250 x 86)=4098438 £(31250 x 86)= 2687500 But we received more dollars, balance is exchanged at spot (4, 124, 236 - 4098438)= $25798 (4, 124, 236 - 4098438)/1. 5374= £ 16780 Premium (58179) Total Receipt £ 2646101 mefielding. com 5

Polytot Futures Hedging a receipt of 4, 124, 236 in 4 months on 1/11

Polytot Futures Hedging a receipt of 4, 124, 236 in 4 months on 1/11 We need to buy pounds so buy futures December, September close too early $4, 124, 236/ 1. 5275= £ 269991 /62500= 43 futures Therefore on 1 July we buy 43 Decembers mefielding. com 6

Polytot Futures On 1 July basis risk inherent in December future is 1. 5510

Polytot Futures On 1 July basis risk inherent in December future is 1. 5510 – 1. 5275= 235, expectation that the £ weakens Assume basis risk declines evenly over time & futures close at month end Therefore by 1 November 4/6 of basis risk will have dissipated and 78 remains (235 x 2/6) At 1 November the spot rate is 1. 5374, therefore assumed future price is minus 78 = 1. 5296 mefielding. com 7

Polytot Futures- Close Out 1/11 £ Exchange dollars at spot $4, 124, 236/1. 5374

Polytot Futures- Close Out 1/11 £ Exchange dollars at spot $4, 124, 236/1. 5374 £ 2682604 Close future Bought at 1. 5275 Sold at 1. 5296 Profit 0. 0021 5644/1. 5374= £ 3671 Total Received mefielding. com $0. 0021 x 62500 x 43= 5644 £ 2686275 8

Polytot Hedging Summary Total £s Received Effective Hedge Rate Forward £ 2682604 1. 5374

Polytot Hedging Summary Total £s Received Effective Hedge Rate Forward £ 2682604 1. 5374 Option £ 2646101 1. 5585 Future £ 2686275 1. 5275 mefielding. com 9

Polytot b) Need agreement from supermarket, contract What are the risks of strawberries, -

Polytot b) Need agreement from supermarket, contract What are the risks of strawberries, - Transportation - Quality - Price - Payment terms - Who bears risks, incoterms - Outlook for Grobbian Peso mefielding. com 10