SAP (a German company) bought Qualtrics for $8 billion in 2018. The deal was to close...
SAP (a German company) bought Qualtrics for $8 billion in 2018. The deal was to close in 12 months. The current exchange rate between USD and Euro was $1.185 at the time of the deal. The exchange rate forecast was for Euro to depreciate against the USD, but the exact decline is not known. SAP decided to hedge with derivatives and purchased enough options for USD. The call option with strike price of $1.18 per Euro is selling for the price of $0.005 USD. The put option with strike price of $1.18 is selling for $0.01. Which option should SAP use? What is the profit/loss from the hedge if the exchange rate turns out to be $1.165 in 12 months? What about if the rate is $1.19?
Homework Answers
SAP should use call option which will give SAP a right but not an obligation to purchase USD at the strike price of the call option. for this right of purchasing USD at the strike price of the call option, SAP has to pay the premium of $0.005. If at the maturity of the call option, spot rate will not be favorable for SAP then it will exercise the option and purchase USD at strike rate of the option. If spot rate will be favorable for SAP then it will let the option expire worthless and purchase the USD from spot market.
profit from the hedge if the exchange rate turns out to be $1.165 in 12 months
Value in Euros of USD payment at the time of the deal = $8 billion/$1.185 = 6.75 billion
Profit = value in euro*(Strike price - spot price after 12 months - premium paid) = 6.75*($1.18 - $1.165 - $0.005) = 6.75*$0.01 = 0.0675 billion euros or 67.5 million euros
If SAP purchased the USD from spot market then it has to pay $8 billion/$1.165 = 6.87 billion euros. now after exercising the option it will get $8 billion at $8/1.18 = 6.78 billion Euros.
if the rate is $1.19
If the rate is $1.19 after 12 months than SAP will let the option expire because it is worthless for them and purchase the USD at lower rate from spot market.
If they purchase USD at strike rate then they have to pay $8/1.18 = 6.78 billion Euros and now they purchase from spot market then they have to pay $8/1.19 = 6.72 billion Euros.
Add Answer to:
SAP (a German company) bought Qualtrics for $8 billion in 2018.
The deal was to close...
FML Company in the U.S. has just signed a contract to purchase light rail cars from...
FML Company in the U.S. has just signed a contract to purchase light rail cars from a manufacturer in Germany for euro 2,500,000. The purchase was made in June with payment in euro due six months later in December. Assume that in December, the axchange rate turns out to be as the company anticipated. If so, then the money market hedge turns out to be ____ than the unhedged position by ______. The spot exchange rate is $1.40/euro The six...
1. The US retail sales amounted to $4.31 billion in 2012. What did retailers sell in 2018 if the ...
1. The US retail sales amounted to $4.31 billion in 2012. What did retailers sell in 2018 if the average annual rise in sales was 2.58%? (.5 points) 2. The European money supply M1 rose from 1,982 billion euros in January 2000 to 8,293 billion euros in January 2019. What was the average growth rate in that 19-year period (compounded annually)? (1.5 points) 3. In January 2002 the Russian unemployment was 6.74 million persons, and in January 2019 it was...
Volkswagen's Hedging Strategy 1. Why did Volkswagen suffer a 95% drop in its 4th quarter, 2003 pr...
Volkswagen's Hedging Strategy
1. Why did Volkswagen suffer a 95% drop in its 4th
quarter, 2003 profits?
2. Do you think the Volkswagen’s decision to hedge only 30% of
its anticipated U.S. sales was a good? Why or why not?
3. Do you think the Volkswagen’s decision to revert back to
hedging 70% of its foreign currency exposure was a good decision?
Why or why not?
Embraer and the Wild Ride of the Brazilian
Real
4. Is a decline in...
JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars and Shares in Millions Except Per...
JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars and Shares in Millions Except Per Share Amounts) (Note 1)* 2016 71,890 21,789 50.101 20,067 9.143 29 Sales to customers Cost of products sold Gross profit Selling, marketing and administrative expenses Research and development expense In-process research and development Interest income Interest expense, net of portion capitalized (Note 4) Other (income) expense, net Restructuring (Note 22) Eamings before provision for taxes on income Provision for taxes on income (Note 8)...
JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars and Shares in Millions Except Per...
JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars and Shares in Millions Except Per Share Amounts) (Note 1)* 2016 71,890 21,789 50.101 20,067 9.143 29 Sales to customers Cost of products sold Gross profit Selling, marketing and administrative expenses Research and development expense In-process research and development Interest income Interest expense, net of portion capitalized (Note 4) Other (income) expense, net Restructuring (Note 22) Eamings before provision for taxes on income Provision for taxes on income (Note 8)...
JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars and Shares in Millions Except Per...
JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars and Shares in Millions Except Per Share Amounts) (Note 1)* 2016 71,890 21,789 50.101 20,067 9.143 29 Sales to customers Cost of products sold Gross profit Selling, marketing and administrative expenses Research and development expense In-process research and development Interest income Interest expense, net of portion capitalized (Note 4) Other (income) expense, net Restructuring (Note 22) Eamings before provision for taxes on income Provision for taxes on income (Note 8)...
JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars and Shares in Millions Except Per...
JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars and Shares in Millions Except Per Share Amounts) (Note 1)* 2016 71,890 21,789 50.101 20,067 9.143 29 Sales to customers Cost of products sold Gross profit Selling, marketing and administrative expenses Research and development expense In-process research and development Interest income Interest expense, net of portion capitalized (Note 4) Other (income) expense, net Restructuring (Note 22) Eamings before provision for taxes on income Provision for taxes on income (Note 8)...
JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars and Shares in Millions Except Per...
JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars and Shares in Millions Except Per Share Amounts) (Note 1)* 2016 71,890 21,789 50.101 20,067 9.143 29 Sales to customers Cost of products sold Gross profit Selling, marketing and administrative expenses Research and development expense In-process research and development Interest income Interest expense, net of portion capitalized (Note 4) Other (income) expense, net Restructuring (Note 22) Eamings before provision for taxes on income Provision for taxes on income (Note 8)...
CASE 1-5 Financial Statement Ratio Computation Refer to Campbell Soup Company's financial Campbell Soup statements in...
CASE 1-5 Financial Statement Ratio Computation Refer to Campbell Soup Company's financial Campbell Soup statements in Appendix A. Required: Compute the following ratios for Year 11. Liquidity ratios: Asset utilization ratios:* a. Current ratio n. Cash turnover b. Acid-test ratio 0. Accounts receivable turnover c. Days to sell inventory p. Inventory turnover d. Collection period 4. Working capital turnover Capital structure and solvency ratios: 1. Fixed assets turnover e. Total debt to total equity s. Total assets turnover f. Long-term...
Volkswagen's Hedging Strategy
1. Why did Volkswagen suffer a 95% drop in its 4th
quarter, 2003 profits?
2. Do you think the Volkswagen’s decision to hedge only 30% of
its anticipated U.S. sales was a good? Why or why not?
3. Do you think the Volkswagen’s decision to revert back to
hedging 70% of its foreign currency exposure was a good decision?
Why or why not?
Embraer and the Wild Ride of the Brazilian
Real
4. Is a decline in...
JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars and Shares in Millions Except Per Share Amounts) (Note 1)* 2016 71,890 21,789 50.101 20,067 9.143 29 Sales to customers Cost of products sold Gross profit Selling, marketing and administrative expenses Research and development expense In-process research and development Interest income Interest expense, net of portion capitalized (Note 4) Other (income) expense, net Restructuring (Note 22) Eamings before provision for taxes on income Provision for taxes on income (Note 8)...
JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars and Shares in Millions Except Per Share Amounts) (Note 1)* 2016 71,890 21,789 50.101 20,067 9.143 29 Sales to customers Cost of products sold Gross profit Selling, marketing and administrative expenses Research and development expense In-process research and development Interest income Interest expense, net of portion capitalized (Note 4) Other (income) expense, net Restructuring (Note 22) Eamings before provision for taxes on income Provision for taxes on income (Note 8)...
JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars and Shares in Millions Except Per Share Amounts) (Note 1)* 2016 71,890 21,789 50.101 20,067 9.143 29 Sales to customers Cost of products sold Gross profit Selling, marketing and administrative expenses Research and development expense In-process research and development Interest income Interest expense, net of portion capitalized (Note 4) Other (income) expense, net Restructuring (Note 22) Eamings before provision for taxes on income Provision for taxes on income (Note 8)...
JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars and Shares in Millions Except Per Share Amounts) (Note 1)* 2016 71,890 21,789 50.101 20,067 9.143 29 Sales to customers Cost of products sold Gross profit Selling, marketing and administrative expenses Research and development expense In-process research and development Interest income Interest expense, net of portion capitalized (Note 4) Other (income) expense, net Restructuring (Note 22) Eamings before provision for taxes on income Provision for taxes on income (Note 8)...
JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars and Shares in Millions Except Per Share Amounts) (Note 1)* 2016 71,890 21,789 50.101 20,067 9.143 29 Sales to customers Cost of products sold Gross profit Selling, marketing and administrative expenses Research and development expense In-process research and development Interest income Interest expense, net of portion capitalized (Note 4) Other (income) expense, net Restructuring (Note 22) Eamings before provision for taxes on income Provision for taxes on income (Note 8)...
CASE 1-5 Financial Statement Ratio Computation Refer to Campbell Soup Company's financial Campbell Soup statements in Appendix A. Required: Compute the following ratios for Year 11. Liquidity ratios: Asset utilization ratios:* a. Current ratio n. Cash turnover b. Acid-test ratio 0. Accounts receivable turnover c. Days to sell inventory p. Inventory turnover d. Collection period 4. Working capital turnover Capital structure and solvency ratios: 1. Fixed assets turnover e. Total debt to total equity s. Total assets turnover f. Long-term...
Most questions answered within 3 hours.
-
ECO
2013 &
asked 56 seconds ago -
Insight refers to:
a.
Adaptive decision-making
b.
Credibility and trustworthness
c.
Understanding of one's problems
d....
asked 7 minutes ago -
Explain the differences between rights and permissions within
Windows. Define the principle of least privilege and...
asked 14 minutes ago -
A solid, frictionless cylindrical reel of mass M=5.00kg and
radius R=0.55m is used to draw water...
asked 16 minutes ago -
how do radio waves get emitted from Jupiter?
- do they come from radiation from planet...
asked 17 minutes ago -
The test statistic used in the F test for the equality of two
variances is calculated...
asked 28 minutes ago -
How does neutralisation of IL-6 trans-signaling affect the
autoimmune disease and inflammation? What if the trans-signaling...
asked 19 minutes ago -
f an allele is 'fixed' in a population, what is its
frequency?
0.50
0.75
0.25
0...
asked 33 minutes ago -
Do we have a duty of national loyalty in business? What is the
major argument in...
asked 33 minutes ago -
compare the international treatment of segment reporting to the
us gaap treatment
asked 30 minutes ago -
A statistics student finds herself struggling with a newspaper
article stating that only eighteen percent of...
asked 1 hour ago -
People with beriberi, a disease caused by a thiamin deficiency,
have elevated levels of blood pyruvate...
asked 50 minutes ago