Question
An American company will be given 1,500,000 CAD in 180 days (360 days per year), and it wants to maximise the USD value of this
An American company will be given 1,500,000 CAD in 180 days (360 days per year), and it wants to maximise the USD value of this transaction.
Call and put options on the CAD in USD are available with the following specifications:
Call premium: 0.04 USD, Strike price of a call = 0.74 USD/CAD
Put premium: 0.03 USD, Strike price of a put = 0.75 USD/CAD
The annual interest rate in US and Canada is 2% and 4% respectively. The current spot rate is 0.60 USD/CAD and 180-day forward rate is 0.62 USD/CAD. The expected CAD spot rate in 180 days has 45% chance to appreciate by 12%, 55% chance to depreciate by 7%.
- Please calculate the company's revenue
- if making a forward hedge
- if making a money market hedge
- if making an option hedge
- if no hedge
Please show workings, a detailed answer will receive the thumb up for sure. Thank you:)
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Global Banking
Authors: Roy C Smith, Ingo Walter, Gayle DeLong
3rd Edition
0195335937, 9780195335934
