Question
A US-based corporation will receive 500 Million (NOK = Norwegian Kroner) in 3 months. The company wishes to hedge changes in the the USD/NOK exchange
A US-based corporation will receive 500 Million (NOK = Norwegian Kroner) in 3 months. The company wishes to hedge changes in the the USD/NOK exchange rate using USD/EUR forward contract. The company makes the following estimates: The standard deviation of quarterly changes in the USD/NOK spot exchange rate is 0.005, the standard deviation of quarterly changes in the USD/EUR forward rate is 0.025, and the correlation between the the two is 0.90.The minimum-variance hedge calls for a forward contract
(a) To buy EUR 90 million.
(b) To sell EUR 90 million.
(c) To by EUR 122.4 million.
(d) To sell EUR 367.65 million.
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