Question
1. Maria Lilita is a chief financial officer of Mrident Group based in Unites States. She has just concluded for the sale of telecommunication equipment
1. Maria Lilita is a chief financial officer of Mrident Group based in Unites States. She has just concluded for the sale of telecommunication equipment to Regency, a British firm for 10,000,000 and payment due in 3 months later.
The following financial and market information are available to Maria:
Spot exchange rate : $1.7640/
3- month forward rate: : $1.7540/
Annual interest rate in UK : 8%
Annual interest rate in USD : 6%
3-month Call option on USD : 1.0711/$ with a premium of 2%
3- month Put option on USD : 1.0700/$ with a premium of 2%
Assume the cost of capital of the company is 10% and the company does not have surplus fund. Should Maria implements forward hedge, money market hedge, or currency options hedge? Justify your answer.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started