An Indonesian company is about to pay an international turnkey project with total payment of US Dollar 25 million and due six months from today. The current spot rate is IDR 14,000/$, and a forward rate (180 days), IDR 14,200/$. The 180-day dollar interest rate is 3.50% p.a., while the 180-day IDR deposit rate is 6.00% p.a. The company can borrow IDR at 10.00%, and can probably borrow in the U.S. dollar market at 6.50%. Bank Indonesia forecasts the spot rate in three to six months will be between IDR 14,050 to 14,250 per US Dollar. A 180-day call option on dollars for a strike price of IDR 14,150/$ sells at a premium of 2.00%, A 180-day put option on dollars, also at same strike price, sells at a premium of 1.00%.

Required:

What is the best hedging that the company can make to minimize transaction exposure?

Answer rating: 100% (QA)

To minimize transaction exposure the company can consider the following hedging options and choose the one that provides the most favorable outcome 1 ... View the full answer