Finance
Treasury Risk Management
(a)
(a.1)
The forward rate is:
Forward rate = 1.4010 + 0.095
Forward rate = 1.4105
Payment in six months: 8.5 million euros.
Payment in GBP = 6,03 million GBP
(a.2)
8.5 million EUR are 85000 options paid:
Call: 1.2 * 85000 = 102000 GBP in paid premium
Put: 1 * 85000 = 85000 GBP in paid premium
Both strike options are different from the two values of currency exchange 1.37 EUR/GBP and 1.43 EUR/GBP. The results will be:
8,5 million EUR / 1.42 = 5,985,915.49 GBP – 102000 GBP = 5,883,915.00 GBP
8,5 million EUR / 1.4180 = 5,994,358.00 GBP – 85000 GBP = 5,095,204.92 GBP
Payment in six months: 8.5 million euros.
1 GBP = 1.37 EUR
8.5 million euros = 6.20 million pounds
The net receipt is 6.20 million pounds.
1 GBP = 1.43 EUR
8.5 million euros = 5.94 million pounds
The net receipt is 5.94 million pounds.
(b)
First of all, there is no information about the exchange rate in the moment of the contract elaboration. There are two proposed scenarios: 1.37 EUR/GBP and 1.43 EUR/GBP. The strategy to protect the company against exchange currency loses on the initial currency exchange at the moment of the contract sign or the average currency exchange of the financial statements. According to the three available alternatives, the best option is (iii), To do nothing.
(c)
Introduction
The ISIS is the Islamic State in Iraq and Syria; it is considered a terrorist group that controls an important territory, production means and army of Syria and Iraq. The group affected the peace in the Middle East generating a flux of migrants of more than six million people outside the country. The ISIS is a disturbing force that affected the peace in Europe by terrorist attacks (for example, Paris in November 2015) and dozens of terrorism thread introducing fear in government and people. The ISIS has an effect on the European economy due to the refugee crisis, fear, oil industry and the relation to Non-Eurozone economies as Norway, Sweden, Denmark, Switzerland and the United Kingdom.
The impact of ISIS in the European economy due to refugees.
The Syria and Iraq conflict between the ISIS, the government of Iraq, Syria and the international forces that have a presence in the area generated a 4.8 million people, considering the data of January 2016. An approximate of 1 million people arrived in Europe generating an increase in the expenses of the government and supranational organizations to receive the refugees, offer asylum, food, housing, security and education. The sum of money that the European governments and the supranational organization spent in the refugees situations by December 2015 is more than 4 billion dollars affecting the economic situation of the Euro Zone , fiscal deficit and the perception of the euro currency against another currencies as the Swiss franc, British pound and krones from Norway, Sweden a Denmark.
The presence of refugees in several cities of Europe affected the flux of worldwide tourists to the Euro Zone. France, the most important tourist destination of the Euro Zone, including its capital, Paris has at least in the short term a reduction in the interest of international tourists (American and South East Asia) to visit the Euro Zone.
The tourism is affected on the Mediterranean coast and the cruises operators that are suffering a reduction in bookings and sales in the year 2015 and 2016 in more than 10%. The coasts of Italy and Greece are the most affected by the refugee's movement by sea .
Terrorist attacks in Europe and the economy
The suicide attacks in Paris last November 2015 was the main event that affected the normal life in the city and put an alert in other main cities of the continent as London, Madrid, Berlin, and Frankfurt . The previous scenario increases the fear in the continent affecting the investments in the company and the consumer perception of the economy. The European Central Bank reduced the interest rates near zero with the goal to increase consumption in the population and boost the economy. The European monetary policy, leaded by the European Central Bank Head Mario Draghi is applying a Quantitative Easing procedure similar to the United States of America since 2008 with the introduction of more than 80 billion euros per month in order to reduce the deflation possibilities and depreciating the euro against other currencies as British Pound and the Swiss Franc.
Geopolitical relations with Russia
The Syria and Iran Conflict and the ISIS attacks increased the tension in the relations between Russia and the European Union with the extension of new sanctions from the United States of America and The European Union against Russia. The most affected region of the world affected by the sanctions, apart from Russia, is the European Union. The sanctions affected Italy, Hungary and Greece; three countries of the European Union with two important interests with Russia specially . The first interest is a destination for the exports of those countries and the second one, a key player in the resolution of the Syria conflict. Russia has an important role in the Syrian crisis where the Putin Administration is supporting the Bashar Al Assad government.
The Euro (EUR) had their best rate against the British Pound (GBP) in February 2016 with a rate of 1.26 EUR/GBP. The trend for the currency is to recover its value to near 1.30 EUR/GBP in the short term . There are two main circumstances that affect the British pound value. The first one is the "Brexit"; that is the Possibility of United Kingdom to leave the European Union increasing the hazardous and risks over the British economy, the reference date for this event is June 23. The second issue that affects the pair value is the continental Europe situation of deflation and economic growth added to the terrorism threads, ISIS, and refugees crisis.
Conclusion
The ISIS made a contribution in the European economic crisis. The refugee's crisis has an important impact on the tourism of the continent, both regional and international. The ISIS group made important attacks as Paris in November 2015 and other threads in other important cities. The previous scenario with the dollar appreciation, oil price reduction, deflation risks in Europe and the possible exit of the United Kingdom of the European Union made difficult the improve of the European economy in the short term. The rate of the British pound and euro is affected mainly by two factors, the "Brexit" and the situation in the continental European economy.
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Bibliography
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