currency option or currency swaption
Scenario:
Primetime Systems, Inc. now has
total worldwide revenues of over $820 million forecast for this coming year.
You have operations in the United
States of $450 million with a 12% ROS (return on sales),
operations in Germany of ?200
million with an a return on sales (ROS) of 11%,
and operations in Shanghai,
China, of 990 million yuan with an ROS of 9%.
You expect to repatriate all the
ROS to the U.S. when available in 12 months.
Assignment
1. Determine the spot and
12-month forward exchange rates and determine any change in the ROS repatriated
in 12 months based on exchange rates versus the current forecast.
2. Describe the repatriation
using a spot transaction, an outright forward, and a foreign-exchange swamp.
3. Would there be any use or
benefit in using a currency option or currency swaption?
4. Describe each.
5. How would you advise the
company to handle the repatriation?
6. Please cite all references
