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3 Instruction 1 0 . 1 : Use the information for the following problem ( s ) . Central Valley Transit Inc. ( CVT )
Instruction :
Use the information for the following problems
Central Valley Transit Inc. CVT has just signed a contract to purchase light rail cars from a manufacturer in Germany for The purchase 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, CVT is considering several hedging altematives to reduce the exchange rate risk arising from the sale. To help the firm make a hedging decision you have gathered the following information.
The spot exchange rate is $ euro
The six month forward rate is $ euro
CVTs cost of capital is
The Euro zone month borrowing rate is or for months
The Euro zone month lending rate is or for months
The US month borrowing rate is or for months
The US month lending rate is or for months
December call options for euro ; strike price $ premium price is
CVTs forecast for month spot rates is $ euro
The budget rate, or the highest acceptable purchase price for this project, is $ or $ euro
A loss;
B gain;
C loss; $
D gain; $
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