Problem Solving: Compute for what is required. Show supporting solutions.
Round off final
answers to two decimal places. Double rule as needed. Encircle final answer.
Problem 1: On Jan 1, 2022, ABC Corporation agreed that it will buy 10,000 USD one month
from now.
Selected exchange rates were gathered:
Selling Rate Buying Rate
Spot rate, Jan 1 P58.20 P58.11
Spot rate, Jan 31 P29.35 P59.23
30-day future rate, Jan 1 P58.25 P58.18
30-day future rate, Jan 31 P59.41 P59.42
Required: How much is the net realized gain/(loss) based on the information above?
Problem 2: ABC Corp, acquired 3 long future contracts. Each contact has 1,000 tons of rice
as its underlying asset with an agreed price of 30,000 per ton. The value of a ton of rice is
P30,500.
Required: How much is the total cash to be received/(paid) by ABC assuming there
will be actual delivery of the goods?
Problem 3: The underlying asset of a short futures contract is 50,000 shares of Ayala Corp.
Strike price is P335 per share. On the agreed date, the market value is P330 per share.
Required: How much is the gain/(loss) relating to the contract?
Problem 4: ABC Corporation acquired a Bermuda call option for 1,000 shares of XYZ Corp.
at a strike price of P300, exercisable every 1st day of the month for six months. ABC paid a
premium of P4,000. The following were the share value of XYZ Corp.
January – P330 February – P273 March – P315
April – P280 May – P276 June – P289
Required: Assuming that ABC was able maximize the use of the option, how
much is the net benefit that ABC would gain?
Problem 5: ABC Corporation bought a put option on XYZ Corp. P5,000,000- face value
bonds for a premium of P25,000. The strike price is P5,100,000.
Required: If on the exercise date of the option, the bonds were selling at
P5,200,000 and assuming ABC was able to effectively decide whether to use the
option, how much is the gain/(loss) incurred?
Problem 6: On Jan 31, 2022, ABC Corp. agreed with the bank a P5,000,000 loan to be
credited to ABC on May 1, 2022. The prevailing interest rate on Jan 31 was 7% but they also
entered into a forward rate agreement (FRA) 3-12 to set the interest of the future loan at 8%
The actual interest rate on May 1 was 10%
Required: How much is the effective rate of the loan considering the
presence of the FRA?
Problem 7: On July 1, 2021, ABC Corp. agreed with the bank a P5,000,000 loan to be
credited to ABC on Sept. 30, 2021 and due on Dec. 31, 2022. They also entered into an
agreement of a 9% interest rate guarantee for a P15,000 premium.
Required: If the actual interest rate on Sept. 30 is 23% how much would the
ideal effective interest rate on the load be for ABC?
Problem 8: Next month, ABC Corporation will be borrowing P2,500,000 for a period of 6
months. The entity would like to hedge its interest rate exposure by trading interest rate
futures. Each future has principal amount of P500,000 and a term of 3 months. The price of
a future is currently at 94.00. One month later, the price of future contract is 92.50.
Required: Excluding the effect of any cost of option contracts and considering the
execution of the option, what would the effective interest rate be for ABC’s loan?
Problem 9: ABC and XYZ are subsidiaries to a holding corporation both need to borrow
P10,000,000 for one year.
ABC Corporation has the option to borrow at a fixed rate of 13% or at a variable rate
of treasury bond rate plus 4%
On the other hand, XYZ Corporation has the option to borrow at a fixed rate of 12%
or at a variable rate of treasury bonds rate plus 6%
ABC prefers a variable rate borrowing while XYZ prefers a fixed rate one. As the
financial adviser, you would recommend an interest rate swap.
Required: How much is the cash to be received by or (paid to) ABC?
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ENCIRCLE FINAL NUMERICAL ANSWER(S).
PROBLEM 2: Purple Corporation acquired 5 short futures contracts for iron. Each contract
has a total agreed price of P335,000. The iron is to be delivered one year from now. On the
agreed date, the total market value of the specified iron per contract is valued at P348,000
each. How much is the amount to be received / (paid) on the five contracts?
PROBLEM 3: On January 1, 2023, Yellow Corporation acquired a call option for 5 boxes of
mangoes by paying an option premium amounting to P650. The agreed price is P3,000 per
box and the agreed date is May 30, 2023.
On May 30, a box of mangoes sells for P3,150. How much is the net gain/(loss) on the
option?
PROBLEM 4: On June 1, 2023, Red Corporation sold goods for $1,500 to one of its regular
customers. With their long history, Red knows that the customer will pay after 30 days. It
also would like to manage this foreign exchange risk by entering into a forex option which
costs Red P125. The following were gathered from Red’s Bank:
Forward Rate Forward Rate
June 1: Spot rate July 1: Spot rate
30-days 60-days 30-days 60-days
Buying Buying
51.33 51.45 51.66 51.54 51.70 51.93
Rate Rate
Selling Buying
51.44 51.59 51.93 51.67 51.85 52.10
Rate Rate
How much is the net gain or (loss) on the option contract?
PROBLEM 5: On January 1, 2023, Yellow Corporation was informed that its parent
corporation located in the USA will be investing $55,000 in it. The amount will be remitted
on September 28, 2023. Yellow would like to use a money market hedge to fix the amount
to be received on Sept. 28 and it had gathered information from the bank as follows: Spot
Rate: PHP52.8–53.33 / USDInterest Rate, USD-Denom.: 9%–12% Interest Rate, PHP-
Denom.: 8%–10% How much is the peso equivalent of the USD to be received on Sept. 28?
PROBLEM 6: Gray Corporation would like to fix the interest rate on its P4,000,000 half-year
loan. If an interest rate future covers a principal amount of P500,000 and a term of 3
months, how many contracts should Gray acquire?
PROBLEM 7: On Nov. 30, 2022, ABC signed the contract P2,000,000 IRG 2-11 at 11% for a
premium of P20,000. If on January 30, 2023, the actual interest rate is 12%, how much is
the ideal effective rate on the loan with potential exercise of the IRG?
PROBLEM 8: Orange Inc. and Blue Corporation would like to find out if an interest rate swap
is feasible between them. Orange prefers a variable interest rate while Blue prefers a fixed
interest rate. The following were offered by their respective banks: Orange: 10.0% or TBR +
3% Blue: 9.0% or TBR + 1%
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On January 1, 2023, ABC Corporation sold its foods to a Japanese corporation. The sales
were invoiced at JY500,000. The collection will be two months from now. ABC would also
like to hedge this foreign exchange transaction by entering into an option contract the costs
P500. Relevant exchange rates (PHP-JYP) are follows:
Buying Rate Selling Rate
Jan 1, 2020 Spot Rate 0.512 0.517
Jan 1, 2020 30-days forward 0.515 0.521
Jan 1 2020 60-days forward 0.517 0.523
Jan 31, 2020 Spot Rate 0.514 0.519
Jan 31, 2020 30-days forward 0.514 0.52
Jan 31, 2020 60-days forward 0.515 0.521
March 2, 2020 Spot Rate 0.51 0.514
March 2, 2020 30-days forward 0.508 0.512
March 2 2020 60-days forward 0.505 0.511
What is the value of the option contract upon fulfillment?
On January 1, 555 Mega Corporation entered into a European call option to acquire Tesla
properties for P27,000,000 two months from now. On February 1, the properties were
appraised and given a book value of P25,000,000 and a fair market value of P30,000,000 in
which Mega preferred to exercise the contract. What is the value of the call option?
On January 1, 2023, Jisoo agreed to an option contract to buy Lisa’s album went for P800
three months from now. On Apil 1,2023, Lisa’s album went for P1,000 due to her increasing
popularity
A. How much is the value of Jisoo’s option contract?
B. If the option contract requires Jisoo to pay an option premium of P250, should she
still exercise the option?
The Finance Department of Meme Corporation will have P1,470,000 in excess cash by the
end of the month. It will be investing all of the excess cash in shares by the end of the
month. The department want to reserve 2NE1 Corp. shares as an investment. A
standardized option has a contract size of 1,000 2NE1 Corp. shares and a price of P490 per
share. Assuming that the Finance Department has acquired option within its budget and
that the current market value of a 2NE1 Corp. share is P500, what is the value of the option
contact?
Eren Corporation would like to make better investing strategies but is limited to a maximum
of P30,000 contracting cost. It plans to short-sell Titan Corporation bonds but wants to
limit its exposure by using options. The standard option contact has P3,000,000 par value
bonds at its underlying asset, and the exercise price was agreed to be P3,066,000. The
option premium is P6,000 each. Assuming that the value of a P3,000,000 par value Titan
Corporation bond is P3,035,000 on the exercise date, how much is the titan net benefit that
Eren will obtain from the option contracts
On January 1, 2023, ABC Corporation sold its foods to a Japanese corporation. The sales
were invoiced at JY500,000. The collection will be two months from now. ABC would also
like to hedge this foreign exchange transaction by entering into an option contract the costs
P500. Relevant exchange rates (PHP-JYP) are follows:
Buying Rate Selling Rate
Jan 1, 2020 Spot Rate 0.512 0.517
Jan 1, 2020 30-days forward 0.515 0.521
Jan 1 2020 60-days forward 0.517 0.523
Jan 31, 2020 Spot Rate 0.513 0.519
Jan 31, 2020 30-days forward 0.514 0.52
Jan 31, 2020 60-days forward 0.515 0.521
March 2, 2020 Spot Rate 0.51 0.514
March 2, 2020 30-days forward 0.508 0.512
March 2 2020 60-days forward 0.505 0.511
What is the value of the option contract upon fulfillment?
On Sept 1, Rave Inc. imported clothes from the United States to be sold locally, The total
payables of Rave were accounted to be a total of $1500 and they were required to pay it 90
days from now. Rave entered into a forward contract to hedge the foreign currency
exposure. Relevant exchange rates are as follows:
PHP/USD Spot 3-months Forward
As of: Buying Selling Buying Selling
1-Sep 49.55 51.25 48.66 49.95
1-Dec 49.35 50.75 48.51 49.55
What is the value of the contract to Rave inc. at the end of the contract?
AMD Industries entered into an agreement to acquire 8 long future contracts. The specifics
of an individual contract reveal that it is composed of 50,000 shares of SFX Corporation
and the total agreed price is P255,000 (per contract). In the expiry date, a share of SFX
Corporation has a fair market value of P4.50 per share. What is the total value of the
contracts?
Fifteen put option contracts were recently acquired by Kingdom Company which allows
them to sell 500 sets of accounting books at P1,500 per set 3 months from now. After 3
months, the books went up in price due to an increase in demand and are being valued at
P1,850 per set. How much is the total value of the contract?
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1. Sakuna Corporation must pay $100,000 to imports Y3,000,000-worth of Japanese
food products into the Philippines. It needs the foreign currency 60 days from now. It
approached a band and entered an option contract to hedge this foreign currency
risk. The fair market value of $1 on the agreement date is P55.01 and the agreed
hedging price is P55.23 per dollar. On the exercise date, the selling spot rate is
P55.42, while the buying spot rate is P55.15. What is the total value of Sakuna’s
contract as of the exercise date?
2. On January 1, Five Mega Corporation entered into a European call to option to
acquire Tesla properties for P27,000,00 0 two months from now. On March 1, the
properties were appraised and given a book value of P25,000,000 and a fair market
value of P30,000,000 with a waived option premium of P100,000. What is the value
of Five Mega’s call option?
3. On January 1, 2023, Jiscoo agreed to an option contract to buy Lisa’s album for P800
three months from now. On April 1, 2023, Lisa’s album went for P1,000 due to here
increasing popularity.
a. How much is the value of Jiscoo’s option contract?
b. If the option contract requires Jiscoo to pay an option premium of P250
should she still exercise the option?
4. Dikonaalam Corp. sell its goods to ewankosayo corp. the sales were invoiced at
100,000. The collection will be 2 months from now. DIkonaalam Corp would hedge
this transaction to option contract that cost P100. Relevant exchange rate are:
Buying Rate Selling Rate
Jan 1, 2020 Spot Rate 0.813 0.812
Jan 1, 2020 30-days forward 0.861 0.813
Jan 1 2020 60-days forward 0.815 0.820
Jan 31, 2020 Spot Rate 0.812 0.819
Jan 31, 2020 30-days 0.814 0.815
forward 0.816
Jan 31, 2020 60-days 0.815 0.805
forward
March 2, 2020 Spot Rate 0.81 0.803
March 2, 2020 30-days 0.83 0.81
forward
March 2 2020 60-days 0.82 0.821
forward
A. put option
B. Buy or call option
5. The Finance Department of Meme Corporation will have P1,470,000 in excess cash by
the end of the month. It will be investing all of the excess cash in shares by the end of the
month. The department want to reserve 2NE1 Corp. shares as an investment. A
standardized option has a contract size of 1,000 2NE1 Corp. shares and a price of P490 per
share. Assuming that the Finance Department has acquired option within its budget and
that the current market value of a 2NE1 Corp. share is P500, what is the value of the option
contact?
6. On January 1, 2023, ABC Corporation sold its foods to a Japanese corporation. The sales
were invoiced at JY500,000. The collection will be two months from now. ABC would also
like to hedge this foreign exchange transaction by entering into an option contract the costs
P500. Relevant exchange rates (PHP-JYP) are follows:
Buying Rate Selling Rate
Jan 1, 2020 Spot Rate
Jan 1, 2020 30-days forward
Jan 1 2020 60-days forward
Jan 31, 2020 Spot Rate
Jan 31, 2020 30-days forward
Jan 31, 2020 60-days forward
March 2, 2020 Spot Rate
March 2, 2020 30-days forward
March 2 2020 60-days forward
What is the value of the option contract upon fulfillment?
7.Eren Corporation would like to make better investing strategies but is limited to a
maximum of P30,000 contracting cost. It plans to short-sell Titan Corporation bonds but
wants to limit its exposure by using options. The standard option contact has P3,000,000
par value bonds at its underlying asset, and the exercise price was agreed to be
P3,066,000. The option premium is P6,000 each. Assuming that the value of a P3,000,000
par value Titan Corporation bond is P3,035,000 on the exercise date, how much is the titan
net benefit that Eren will obtain from the option contracts
8. On Sept 1, Rave Inc. imported clothes from the United States to be sold locally, The total
payables of Rave were accounted to be a total of $1500 and they were required to pay it 90
days from now.
Reve entered into a forward contact to hedge the foreign currency exposure. Relevant
exchange rates are as following:
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