Europa plc is a UK-based importexport company. It is now 15 May and the following transaction has
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Europa plc is a UK-based import–export company. It is now 15 May and the following transaction has been agreed:
The sale of pine furniture worth $1,250,000 to the United States receivable on 15 August.
$/£ FX rates Spot 1.6480–1.6490 Two months’ forward -88–76 (premium)
Three months’ forward -130–124 (premium)
Three-month money market interest rates
£10,–8,
+8,–6, Required
(a) Hedge Europa’s risk exposure on the forward market.
(b) Hedge Europa’s risk exposure on the money market.
(c) Which is the more favourable hedge from Europa’s point of view?
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