a) Suppose SemCo Ltd (a UK Company) has payables of US\$40 million due in 90 days from now. Over-the-counter put and call options on US dollars, both at an exercise price of 0.72 per US\$, are available for a premium of 0.03 and 0.04 per US\$ respectively. If SemCo decides to hedge using options, the required premium for the option used will be paid from an overdraft account on which it pays 6% per annum. i. Calculate the values if the company chooses the options hedge is used ii. A 90-day forward contract is available at 0.75/$. Determine the exchange rate at which SemCo Ltd would be indifferent between the options and the forward hedge. (12 marks) a) As a Treasurer of SemCo Ltd you would like to use currency futures contracts to hedge US\$40million that you owe to the supplier in June. A futures quote of 0.74/$ for June delivery is available on International Money Market. The contract size is US\$125,000. You decide to take a position in the futures to hedge exposure to the US\$. In June the relevant futures contract is trading 0.76/$. Ignoring margin, was it good that you hedged using futures if the spot exchange rate in June is 75/$ ? How much is the profit or loss on the futures position? (8 marks) (Total 20 marks) a) Suppose SemCo Ltd (a UK Company) has payables of US\$40 million due in 90 days from now. Over-the-counter put and call options on US dollars, both at an exercise price of 0.72 per US\$, are available for a premium of 0.03 and 0.04 per US\$ respectively. If SemCo decides to hedge using options, the required premium for the option used will be paid from an overdraft account on which it pays 6% per annum. i. Calculate the values if the company chooses the options hedge is used ii. A 90-day forward contract is available at 0.75/$. Determine the exchange rate at which SemCo Ltd would be indifferent between the options and the forward hedge. (12 marks) a) As a Treasurer of SemCo Ltd you would like to use currency futures contracts to hedge US\$40million that you owe to the supplier in June. A futures quote of 0.74/$ for June delivery is available on International Money Market. The contract size is US\$125,000. You decide to take a position in the futures to hedge exposure to the US\$. In June the relevant futures contract is trading 0.76/$. Ignoring margin, was it good that you hedged using futures if the spot exchange rate in June is 75/$ ? How much is the profit or loss on the futures position? (8 marks) (Total 20 marks)