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    1 views13 pages

    Managing Exposure

    Uploaded by

    Kingsman kuku

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 13

    Sale 1000000

    Rate Dollar per pound (Spot Rate) 1.76 1.7 1.78

    Recievables after 90 days 1760000 1700000 1780000


    Loss -60000 20000

    Forward Hedge
    Sales 1000000
    Current Spot rate 1.764 1.754 1.78 1.65

    Value in dollar 1764000 1754000


    Loss -10000

    Money Market Hedge


    Sales 1000000
    Current Spot rate 1.764

    Loan in pound for 3 months 975610 24390


    Interest rate 10% 2.5%
    time preiod 3 months

    Loan proceeds in dollar 1720975.61


    Sales 1764000
    WACC 12% 3%
    FV (after 3 months) 1772604.878
    8605

    FV
    Loan Proceeds 1720975.61
    MMH
    Proceeds in forward contract 1754000 FMH

    R 0.01918934247.68%

    Sales 1000000
    Spot rate 1.764
    Put Option contract (at the money) 1.764
    Premium 1.50%
    Value of Premium 26460 1.79
    WACC 12% 3%
    FV of Premium 27254 0.0273

    Spot rate after three months 1.764 1.754 1.78 1.65


    Execute Y Y N Y
    Payoff 1737540 1726746.2 1753540
    -10793.8 16000
    Purchase 1000000

    Spot rate day of payment 1.76 1.65 1.78


    Payment in dollar 1760000 1650000 1780000

    Forward Hedge

    Purchase 1000000

    Spot rate 1.76 1760000


    Forward (3 months) 1.754 1754000 1.78
    Profit 6000

    Money Market Hedge


    Purchase 1000000
    Invest 980392
    Interest rate 8% 2%
    Spot rate 1.764
    Invest in dollar 1729411.765
    WACC 12% 3%
    value 3 months from
    now if invested in
    business 1781294.118
    Purchase value 1764000
    Loss -17294

    Option Hedge
    Purchase 1000000
    Spot rate 1.764
    Strike Price (Call Option) 1.764
    Premium 1.50%

    Value Premium 26460


    WACC 12% 3% Lower Price Upper Price
    Value of Premium three
    from now 27254 0.0272538 Break Even 1.74 1.79 1.8

    Maturity Day
    Spot rate 1.764 1.7 1.78
    Execution of Option contract N Y
    Purchase 7800
    Initial payment 1500
    6300 6300000000
    Spot rate (Won/$) 1071.95
    Value in Dollar 5877139.792

    Unhedged
    After Months
    Spot 1071.95 1103.28 1030
    Payment 5877139.792 5710245.812 6116504.854
    Forward hedging
    Forward 1103.28
    6 months forward rate 5710246 166894

    Money Market Hedge

    Purchase Price (Balance) 6300000000


    $ Korean Won
    Interest Rate (Investment) 5% 12% 6%
    Borrow 6% 13%

    Present Value 5943396226


    Spot Rate 1071.95
    Present Value (in Dollar) 5544472

    WACC 9% 4.5%
    Amount invested (adjusted for WACC) 5793973
    FMH - MMH (Profit or loss) -83727

    Option Market Hedging


    Strike Price Premium
    Call option on Won (Strike Rate) 1100 2.83%
    Put option 1100 2.48%
    Purchase Price 6300000000

    Value of Premium 162082

    6 month Spot Rate 1100 1103.28 1110 1090 1050


    Execute the Call option
    N N Y Y
    Pay in Dollar 5727273 5710246 5675675.676
    5779816.514
    6000000
    -17027 -51597 52544 272727
    FMH - OPMH -17027
    Assumptions 2014 2015 2016 2017 2018
    Sales Volume 1,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00
    Sales Price per unit (Euro) 12.8 12.80 12.80 12.80 12.80
    Direct Cost Per unit (Euro) 9.6 9.60 9.60 9.60 9.60
    Corporate Tax 29.50% 0.295 0.295 0.295 0.295
    Exchange Rate ($/Euro) 1 1.00 1.00 1.00 1.00

    Income Statement 2014 2015 2016 2017 2018


    Sales Revenue 12800000 12800000 12800000 12800000 12800000
    Cost of Goods sold -9600000 -9600000 -9600000 -9600000 -9600000
    Cash Operating Expense -890000 -890000 -890000 -890000 -890000
    Depreciation -600000 -600000 -600000 -600000 -600000
    Pre-Tax profit 1710000 1710000 1710000 1710000 1710000
    Income tax Expense -504450 -504450 -504450 -504450 -504450
    Net Income 1205550 1205550 1205550 1205550 1205550

    Cash Flow for Valuation 2014 2015 2016 2017 2018


    Net Income 1205550 1205550 1205550 1205550 1205550
    Add Depreciation 600000 600000 600000 600000 600000
    Changes in NWC 0 0 0 0 0
    Free Cash flow in Euro 1805550 1805550 1805550 1805550 1805550
    Free Cash flow in Dollar 1805550 1805550 1805550 1805550 1805550
    Present Value ₹ 6,052,483.64
    receivable days OF SALE 45
    Inventory of COGS 10.00
    Payable as days of sale 38

    Recievable days = Receivable/Sales *365


    Inventory Days = Inventory/COGS *365

    Operating Expenses 890000


    Depreciation 600000

    WACC 15%

    Increase in sales volume for case 2


    Assumptions 2014 2015 2016 2017 2018
    Sales Volume 1,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00
    Sales Price per unit (Euro) 12.8 12.80 12.80 12.80 12.80
    Direct Cost Per unit (Euro) 9.6 9.60 9.60 9.60 9.60
    Corporate Tax 29.50% 0.295 0.295 0.295 0.295
    Exchange Rate ($/Euro) 1 1.00 1.00 1.00 1.00

    Income Statement 2014 2015 2016 2017 2018


    Sales Revenue 12800000 12800000 12800000 12800000 12800000
    Cost of Goods sold -9600000 -9600000 -9600000 -9600000 -9600000
    Cash Operating Expense -890000 -890000 -890000 -890000 -890000
    Depreciation -600000 -600000 -600000 -600000 -600000
    Pre-Tax profit 1710000 1710000 1710000 1710000 1710000
    Income tax Expense -504450 -504450 -504450 -504450 -504450
    Net Income 1205550 1205550 1205550 1205550 1205550

    Cash Flow for Valuation 2014 2015 2016 2017 2018


    Net Income 1205550 1205550 1205550 1205550 1205550
    Add Depreciation 600000 600000 600000 600000 600000
    Changes in NWC 0 0 0 0 0
    Free Cash flow in Euro 1805550 1805550 1805550 1805550 1805550
    Free Cash flow in Dollar 1805550 1805550 1805550 1805550 1805550
    Present Value ₹ 6,052,483.64
    receivable days OF SALE 45
    Inventory of COGS 10.00
    Payable as days of sale 38

    Recievable days = Receivable/Sales *365


    Inventory Days = Inventory/COGS *365

    Operating Expenses 890000


    Depreciation 600000

    WACC 15%

    Increase in sales volume for case 2


    Assumptions 2014 2015 2016 2017 2018
    Sales Volume 1,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00
    Sales Price per unit (Euro) 12.8 12.80 12.80 12.80 12.80
    Direct Cost Per unit (Euro) 9.6 9.60 9.60 9.60 9.60
    Corporate Tax 29.50% 0.295 0.295 0.295 0.295
    Exchange Rate ($/Euro) 1.2 1.20 1.20 1.20 1.20

    Income Statement 2014 2015 2016 2017 2018


    Sales Revenue 12800000 12800000 12800000 12800000 12800000
    Cost of Goods sold -9600000 -9600000 -9600000 -9600000 -9600000
    Cash Operating Expense -890000 -890000 -890000 -890000 -890000
    Depreciation -600000 -600000 -600000 -600000 -600000
    Pre-Tax profit 1710000 1710000 1710000 1710000 1710000
    Income tax Expense -504450 -504450 -504450 -504450 -504450
    Net Income 1205550 1205550 1205550 1205550 1205550

    Cash Flow for Valuation 2014 2015 2016 2017 2018


    Net Income 1205550 1205550 1205550 1205550 1205550
    Add Depreciation 600000 600000 600000 600000 600000
    Changes in NWC 0 0 0 0 0
    Free Cash flow in Euro 1805550 1805550 1805550 1805550 1805550
    Free Cash flow in Dollar 2166660 2166660 2166660 2166660 2166660
    Present Value ₹ 7,262,980.36
    receivable days OF SALE 45
    Inventory of COGS 10.00
    Payable as days of sale 38

    Recievable days = Receivable/Sales *365


    Inventory Days = Inventory/COGS *365

    Operating Expenses 890000


    Depreciation 600000

    WACC 15%

    Increase in sales volume for case 2


    Exchange
    Rate Translated
    Assets In Euro (US$/Euro) Accounts
    Cash 1600000 1.2000 1920000 1600000
    Account Recievables 3200000 1.2000 3840000 3200000
    Inventory 2400000 1.2180 2923200 2400000
    Net Plant & Equipment 4800000 1.2760 6124800 4800000
    Total 12000000 14808000

    Liabilities
    Account Payable 800000 1.2000 960000 800000
    Short-term bank debt 1600000 1.2000 1920000 1600000
    Long-term debt 1600000 1.2000 1920000 1600000
    Common Stock 1800000 1.2760 2296800 1800000
    Retained Earnings 6200000 1.2600 7812000 6200000
    Translation Adjustement (CTA) -100800
    Total 12000000 14808000
    1.0000 1600000
    1.0000 3200000
    1.2180 2923200
    1.2760 6124800
    13848000

    1.0000 800000
    1.0000 1600000
    1.0000 1600000
    1.2760 2296800
    1.2600 7812000
    -260800
    13848000
    12/31/2019
    Exchange
    Rate Translated
    Assets In Euro (US$/Euro) Accounts In Euro
    Cash 1600000 1.2000 1920000 1600000
    Account Recievables 3200000 1.2000 3840000 3200000
    Inventory 2400000 1.2000 2880000 2400000
    Net Plant & Equipment 4800000 1.2000 5760000 4800000
    Total 12000000 14400000

    Liabilities
    Account Payable 800000 1.2000 960000 800000
    Short-term bank debt 1600000 1.2000 1920000 1600000
    Long-term debt 1600000 1.2000 1920000 1600000
    Common Stock 1800000 1.2760 2296800 1800000
    Retained Earnings 6200000 1.2600 7812000 6200000
    Translation Adjustement (CTA) -136800.00
    Total 12000000 14772000
    1/6/2020
    Exchange
    Rate Translated
    (US$/Euro) Account
    1.3000 2080000
    1.3000 4160000
    1.3000 3120000
    1.3000 6240000
    15600000

    1.3000 1040000
    1.3000 2080000
    1.3000 2080000
    1.2760 2296800
    1.2600 7812000
    291200
    15600000

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