Essays on Swiss Franc

The Big Mac Index

I would like to analyze The Big Mac Index in European region. I chose 5 currencies: Euro, Sterling, Swiss franc, Zloty and Kroner. Let us have a look on Big Mac prices in each of the country from 2012 to 2016.

Euro area

As it can be seen from this table, raw index was always undervalued – the Bic Mac price in euro was lower than in dollar. It means that the euro currency is overvalued against the dollar. Moreover, we may conclude that the euro is not a very stable currency because the price for Bic Mac changes every year. In ...

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 = ...

Net receipts

When the exchange rate is GBP1 = EUR1.37

Option 1: Forward contract

We subtract the forward points from the spot rates since the bid forward point is greater than ask forward points. Beck Plc. will have 8.5 million euros hence it will buy British pounds at the ask rate. Amount receivable = 8,500,0001.4047 = GBP 6,051,114.11 Net amount received = amount receivable – forward contract cost/premium = 6,051,114.11 – 0 = GBP 6,051,114.11

Option 2: Option hedge

We use a put option since it is a receivable. The spot rate is more favourable than the exercise rate hence Beck Plc. will not exercise the option. Amount receivable = ...