Instruction 9.2: Use the Information for Following Problem(s)

question 50

Multiple Choice

Instruction 9.2:
Use the information for following problem(s) .
Oregon Transportation Inc. (OTI) 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 due six months later in December. Because this is a sizable contract for the firm and because the contract is in euros rather than dollars, OTI is considering several hedging alternatives to reduce the exchange rate risk arising from the sale. To help the firm make a hedging decision you have gathered the following information.
∙ The spot exchange rate is $1.40/euro
∙ The six month forward rate is $1.38/euro
∙ OTI's cost of capital is 11%
∙ The Euro zone 6-month borrowing rate is 9% (or 4.5% for 6 months)
∙ The Euro zone 6-month lending rate is 7% (or 3.5% for 6 months)
∙ The U.S. 6-month borrowing rate is 8% (or 4% for 6 months)
∙ The U.S. 6-month lending rate is 6% (or 3% for 6 months)
∙ December call options for euro 625,000; strike price $1.42, premium price is 1.5%
∙ OTI's forecast for 6-month spot rates is $1.43/euro
∙ The budget rate, or the highest acceptable purchase price for this project, is
$3,625,000 or $1.45/euro
-Refer to Instruction 9.2. If OTI chooses not to hedge their euro payable, the amount they pay in six months will be ________.

• A) $3,500,000
• B) $3,450,000
• C) euro 3,450,000
• D) unknown today

Comprehend the impact of cultural beliefs and worldviews on societal organization and conflict.

Understand the components and functions of working memory.

Describe the concepts of effortful and automatic processing.

Explain the serial position effect and how it impacts memory recall.

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Definitions:

Little League

A youth sports organization in the United States that organizes local baseball and softball leagues for children.

Primary groups

Small social groups whose members share close, personal, and enduring relationships, often characterized by long-term emotional ties and support.

Strong sense

The robust understanding or perception of something, implying a deep and confident knowledge or conviction.

Specific roles

Specific roles refer to the distinct functions or responsibilities assigned to individuals or groups in a social, professional, or organizational context.