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As a foreign exchange trader for Commonwealth Bank of Australia (CBA), you see the following information: One-year Mexican peso (MXN) interest rate One-year New
As a foreign exchange trader for Commonwealth Bank of Australia (CBA), you see the following information: One-year Mexican peso (MXN) interest rate One-year New Zealand dollar (NZD) interest rate Spot exchange rate (MXN/NZD) 90-day forward exchange rate 180-day forward exchange rate 90-day call option on New Zealand dollar 180-day call option on New Zealand dollar 10.65% 5.375% MXN 14.1538/NZD MXN 15.0254/NZD MXN 15.2437/NZD Strike price: MXN 15.5328/NZD Premium: 0.15 MXN per NZD Strike price: MXN 15.8916/NZD Premium: 0.12 MXN per NZD Your friend, Heinz, is running a honey farm in New Zealand. His farm has recently exported 10 tonnes of Manuka honey to several retailers in Mexico and is expecting to receive MXN 21,000,000 in exactly 6 months (i.e., 180 days). Heinz is concerned about potential significant changes in the exchange rate between MXN and NZD. Knowing that you received the "Trader of the Month" award, he has called you to seek advice on what to do. At what future spot exchange rate do you think Heinz will be indifferent between the option and money market hedge?
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