MSc Finance : Assignment title: Cartmel Enterprises Task 1 Calculations Task 2 Report
More details see files.
Task 1 Calculations (30%) (this part i sent you a sample work)
Using the information provided about the transaction and the exchange rate information in Appendix A:
(a) Calculate the potential cross rate that could be used as a substitute official rate for the Sierra Nuevo peso/ and the potential unofficial exchange rate that may be available for the receipt of Sierra Nuevo pesos;
(b) Calculate the expected futures price as at 1 November;
(c) Calculate the outcomes from each of the forms of currency hedge that are available to Cartmel Enterprises:
(i) Forward rate agreement
You should assume that on 1 November the spot rate is $/ 1.6528.
Task 2 Report (65%)
Write a report for the Board of Cartmel Enterprises. Your report should:
(a) Outline two risks, other than currency risk, that may arise from trading with ZZ Hotels and suggest ways to manage these (indicative word count = 400);
(b) Briefly explain how the Black-Scholes (BS) model may be modified to calculate the price of a currency option (no calculations are required) (indicative word count = 250);
(c) Briefly explain two theories that may be used to calculate future exchange rates (indicative word count = 450)
(d) Using your calculations from Task 1, critically evaluate the alternative forms of currency hedge that are available to Cartmel Enterprises and identify the expected revenues, in sterling, from the sale to the company in Sierra Nuevo as a result of each of these hedges (indicative word count = 750);
(e) Provide a reasoned recommendation as to which hedge should be selected (indicative word count = 300).
The remaining 5% will be given for the layout, structure and referencing within your report.
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