19. Currency hedging "Last year we had a substantial income in sterling, which we hedged by selling sterling forward. In the event sterling appreciated. So our decision to sell forward cost us a lot of money. I think that in the future we should either stop hedging our currency exposure or just hedge when we think sterling is overvalued." As financial manager, how would you respond to your chief executive's comment? 16. Currency hedging A firm in the United States is due to receive payment of 1 million in eight years' time. It would like to protect itself against a decline in the value of the euro, but finds it difficult to get forward cover for such a long period. Is there any other way in which it can protect itself? 17. Currency hedging Suppose you are the treasurer of Infthanen the German inte 12. Currency risk You have bid for a possible export order that would provide a cash inflow of 1 million in six months. The spot exchange rate is $1.3549 - 1 and the six-month forward rate is $1.3620 = 1. There are two sources of uncertainty: (1) the curo could appreciate or depreciate and (2) you may or may not receive the export order. Illustrate in each case the final payoffs if (a) you sell 1 million euros forward, and (b) you buy a six-month option to sell euros with an exercise price of $1.3620/