1.- If Plains States locks in the forward hedge at $1.148/ , and the spot rate when the transaction was recorded on the books was $1.174/. this will result in a "foreign exchange loss" accounting transaction of ________________.

2.- Plains States would be ________ by an amount equal to ________ with a forward hedge than if they had not hedged and their predicted exchange rate for 6 months had been correct.

3.-Plains States could hedge the Euro receivables in the money market. Using the information provided how much would the money market hedge return in six months assuming Plains States reinvests the proceeds at the U.S. investment rate?

4.- What is the euro borrowing interest rate that makes the money market hedge equivalent to the forward hedge?

5.- What is the cost of a put option hedge for Plains States' Euro receivable contract? (Note: Calculate the cost in future value dollars and assume the firm's cost of capital as the appropriate interest rate for calculating future values.)

6.-If the spot exchange rate 6 months later, ST turns out to be $1.21/, what is the payoff in 6 months of the accounts receivable hedged with the put option?

7.- If the spot exchange rate 6 months later, ST turns out to be $1.11/, what is the payoff in 6 months of the accounts receivable hedged with the put option?

Plains States Manufacturing has just signed a contract to sell agricultural equipment to Boschin, a German firm, for 1,250,000. The sale was made in June with payment due six months later in December. Because this is a sizable contract for the firm and because the contract is in Euros rather than dollars, Plains States is considering several hedging alternatives to reduce the exchange rate risk arising from the sale. To help the firm make a hedging decision you have gathered the following information. 0 9 The spot exchange rate is $1.1740/ The six month forward rate is $1.1480/. Plains States' cost of capital is 12% per annum The Euro zone 6-month borrowing rate is 7% per annum (or 3.5% for 6 months) The Euro zone 6-month lending rate is 5% per annum (or 2.5% for 6 months) The U.S. 6-month borrowing rate is 6% per annum (or 3% for 6 months) The US, 6-month lending rate is 4.5% per annum (or 2.25% for 6 months) December put options for 625,000, strike price $1.18, premium price is 1.5% Plains States' forecast for 6-month spot rates is $1.19/ The budget rate, or the lowest acceptable sales price for this project, is $1,425,000 or$1.14/ 5 Plains States Manufacturing has just signed a contract to sell agricultural equipment to Boschin, a German firm, for 1,250,000. The sale was made in June with payment due six months later in December. Because this is a sizable contract for the firm and because the contract is in Euros rather than dollars, Plains States is considering several hedging alternatives to reduce the exchange rate risk arising from the sale. To help the firm make a hedging decision you have gathered the following information. 0 9 The spot exchange rate is $1.1740/ The six month forward rate is $1.1480/. Plains States' cost of capital is 12% per annum The Euro zone 6-month borrowing rate is 7% per annum (or 3.5% for 6 months) The Euro zone 6-month lending rate is 5% per annum (or 2.5% for 6 months) The U.S. 6-month borrowing rate is 6% per annum (or 3% for 6 months) The US, 6-month lending rate is 4.5% per annum (or 2.25% for 6 months) December put options for 625,000, strike price $1.18, premium price is 1.5% Plains States' forecast for 6-month spot rates is $1.19/ The budget rate, or the lowest acceptable sales price for this project, is $1,425,000 or$1.14/ 5