Question
(4) Suppose you are an importer of Brazilian coffee. You expect to import 100,000 pounds of coffee in 6 months. Payment in Brazilian Real is
(4) Suppose you are an importer of Brazilian coffee. You expect to import 100,000 pounds of coffee in 6 months. Payment in Brazilian Real is due in 6 months and will be based on the price of coffee at that time. You project the following five scenarios with regards to the price of coffee in 6 months:
Scenario Price (Real/pound of coffee)
| 1 | 20 real |
| 2 | 25 real |
| 3 | 38 real |
| 4 | 42 real |
| 5 | 50 real |
a) What will you do today to hedge this Real-exposure? (Hint: use forwards and options on the Real)
b) Suppose that after 6 months scenario #4 materializes. What would you do?
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The ImpactAssets Handbook For Investors
Authors: Jed Emerson
1st Edition
1783087293, 978-1783087297
