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5) Raider Inc., an American importing firm anticipates an outflow of 893 million in 6 months. Raider's management team is worried about the course of
5) Raider Inc., an American importing firm anticipates an outflow of 893 million in 6 months. Raider's management team is worried about the course of the VS exchange rate over the next 6 months and decides to hedge. The current spot and forward rates are So-121 /S and Ft-6 months-125 /S. The $-interest rate is 5.56% and the -interest rate is 0.48% a. Compute the S cost to Raider Inc. if it hedges its position using the forward b. Compute the S cost to Raider Inc. if it hedges its position using the money market. d. Alternatively, Raider Inc. is contemplating the use of an options hedge. Sanwa i. Call option on 893 million at K121 YS, with a 3.3% premium (price as ii. Put option on 893 million at K121 YS, with a 2.75% premium (price as e. What is the cost of the option hedge? (Hint : show the cost for the worst case market. Which of the two above hedges is best for Raider Inc.? bank is offering to Raider Inc. the following options: c. a percent of current spot rate) a percent of current spot rate) scenario) f. Compute the break-even rate between the options hedge and the better one of the forward and money market hedges. How does the break-even rate help you decide on which hedge to use
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