3. CASE 1: Ganado has 3,500,000 account receivable in 90 days. Ganadothe U.S.-based company discussed in this chapterhas concluded another large sale of telecommunications equipment to Regency (U.K.). Total payment of 3,500,000 is due in 90 days. Maria Gonzalez has also learned that Ganado will only be able to borrow in the United Kingdom at 14.245% per annum (due to credit concerns of the British banks). Given the exchange rates and interest rates in the below window, compare alternate ways below that Ganado might hedge its foreign exchange transaction exposure.

Assume a 360-day financial year.

Put options on the British pound:

Strike rate ($/) $1.73

Put option premium (%)	1.50%
Call options on the British pound:
Strike rate ($/)	$1.73
Call option premium (%)	1.50%

a. How much in U.S. dollars will Ganado receive in 90 days without a hedge if the expected spot rate in 90 days is the same as the current spot rate of $1.7547/?

The 90-day forward rate of $1.7392/?

The expected spot rate of $1.7833/?

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

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

d. How much in U.S. dollars will Ganado receive in 90 days if Ganado covers the transaction exposure with the $1.7300/ put option and the pound depreciates below $1.7300/ in 90 days?

e. What transaction exposure hedge is now in Ganado's best interest?

The ____________guarantees Ganado the greatest dollar value for the accounts receivable when using the cost of capital as the reinvestment rate (carry-forward rate).