You recently graduated and accepted a position in the receivables division of Ex-Im-Age Corporation, a software company
Question:
You recently graduated and accepted a position in the receivables division of Ex-Im-Age Corporation, a software company located in California and specializing in icon-based software. Ex-Im-Age has just made a sale to Germany and has a euro-denominated receivable of €1 million that is due in six months.
a. Represent Ex-Im-Age's exposure as a risk profile showing: (i)
the dollar value of the euro receivable as a function of the dollar value of the euro , and (ii) percentage change in the dollar value of the euro receivable as a function of percentage change in spot rate .
b. Using risk profiles, show how Ex-Im-Age's euro exposure can be hedged with: (i) a currency forward, (ii) a currency futures contract, (iii) a money market hedge, and (iv) a currency option contract.
Step by Step Answer:
Multinational Finance Evaluating The Opportunities Costs And Risks Of Multinational Operations
ISBN: 9781119219682
6th Edition
Authors: Kirt C. Butler