Use the Information for the Following Problem(s)

question 50

Multiple Choice

Use the information for the following problem(s) .
Central Valley Transit Inc. (CVT) has just signed a contract to purchase light rail cars from a manufacturer in Germany for euro 3,000,000. 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, CVT 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 $1.250/euro
∙ The six month forward rate is $1.22/euro
∙ CVT'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 750,000; strike price $1.28, premium price is 1.5%
∙ CVT's forecast for 6-month spot rates is $1.27/euro
∙ The budget rate, or the highest acceptable purchase price for this project, is $3,900,000 or $1.30/euro
-Refer to Instruction 10.1.If CVT chooses to hedge its transaction exposure in the forward market,it will ________ euro 3,000,000 forward at a rate of ________.

• A) buy; $1.22
• B) buy; $1.25
• C) sell; $1.22
• D) sell; €1.25

Describe the impact of government programs on poverty and income distribution.

Analyze the relationship between economic policies and their impact on income inequality.

Understand the concepts and differences among various social insurance and public assistance programs.

Understand the distinctions between social insurance and public assistance programs.

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Definitions:

Discharge

The termination of an employee's job position by the employer, often for cause such as misconduct or poor performance.

Aggregate Welfare

The total level of well-being or economic prosperity of a community, region, or country, considering all individuals and factors collectively.

Top-Down Organizations

Organizations structured so that decision-making and directives flow from the upper levels of management down to the lower levels.

Shareholders

Individuals or entities that own shares in a corporation, giving them partial ownership and a right to part of the profits.