2. Ganado, the US-based company discussed in this chapter, has concluded another large sale of telecommunications equipment to Regency (U.K.). Total payment of 3,300,000 is due in 90 days. Maria Gonzalez has also learned that Ganado will only be able to borrow in the United Kingdom at 14.795% per annum (due to credit concerns of the British banks). The exchange rates and interest rates are listed as follows:

90-day A/R in pounds 3,300,000

Spot rate ($/pound) 1.7503

90-day forward rate ($/pound) 1.7395

3-month U.S. borrowing interest rate 9.054%

3-month U.K. borrowing interest rate 14.795%

Ganado's WACC 11.906%

Put options on the British pound:

Strike rate ($/pound) 1.7300

Put option premium 1.5%

Compare alternate ways below that Ganado might hedge its foreign exchange transaction exposure (assuming a 360-day financial year):

(1) How much in U.S. dollars will Ganado receive in 90 days without a hedge (a) if the expected spot rate in 90 days is the same as the current spot rate of $1.7503/? (b) if the expected spot rate in 90 days is $1.7976/?

(2) How much in U.S. dollars will Ganado receive in 90 days with a forward market hedge?

(3) How much in U.S. dollars will Ganado receive in 90 days with a money market hedge?

(4) How much in U.S. dollars will Ganado receive in 90 days with an option market hedge?

(5) What transaction exposure hedge is in Ganado's best interest?