Questions

Question #1. Given the US Dollar/Japanese Yen foreign exchange rates below, comment on the effect of the change in spot exchange rates on the cost of importing Japanese products. (click here to see solution)

	Apr.	May	Jun.	Jul.	Aug.	Sep.	Oct.	Nov.	Dec.	Jan.	Feb.	Mar.
Exchange Rate ($ to ¥)	.00769	.00763	.00769	.00781	.00793	.00854	.00854	.00870	.00952	.00980	.01010	.01031

Question #2. What types of factors probably contributed to TEC's decision to hedge against the appreciation of the Japanese yen? (click here to see solution)

Question #3. What characteristics of Asian call options make them attractive to importers such as TEC?
(click here to see solution)

Question #4. What are the consequences to TEC if the yen depreciates (dollar appreciates) throughout the year in question? (click here to see solution)

Question #5. Would it be feasible for TEC to use a string of monthly vanilla call options (instead of the Asian call option) to hedge its foreign exchange risk? (click here to see solution)

Question #6. Determine the value of TEC's geometric Asian call option. (click here to see solution)

Question #7. In light of recent developments in derivatives accounting, what is the proper way for TEC to account for its Asian option? (click here to see solution)

Question #8. What is the best way for TEC to evaluate its risk? (click here to see solution)