As the treasurer of Blue Yellow Airlines plc you have been called upon to maximise shareholder value and extract the best value from the recent strategic disposal of the airlines US division.

There have been several delays due to ongoing due diligence and protracted legal negotiations. However Blue Yellow Airlines solicitors suggest that contracts are now likely to close in August 2015, i.e., three months from now.

The USD Value of the division is $2,000m. The current Usd/Eur exchange rate is $1.0500 per 1.00.

A member of your economics team has used PPP and suggests that 1.0200 could trade if fundamentals hold true.

As treasurer you are concerned about the volatility in the Usd/Eur exchange rate and have asked your team to gather data from the market to enable you to consider a suitable hedging strategy.

Current Spot in Usd/Eur is 1 = $1.0500/ 1.0520

Forward Points quoted by bank +15 / +20.

Annual Interest rates Europe USA

Deposit 5% 6%

Borrow 9% 10%

Futures Market for Usd/Eur

Mar 2015 1.0475

Jun 2015 1.0485

Sep 2015 1.0495

Dec 2015 1.0520

Futures Specification: Contract on Euro 125,000

Tic calculated as .0001

Tic Value USD $12.50

For this futures calculation only, assume the Usd/Eur is trading at 1.0300 for close out calculations.

A Put Option in Usd/Eur, Strike 1.0520 is priced at 1%

A Call Option in Usd/Eur, Strike 1.0520 is priced at 1.2%

Required:

Construct a suitable FX strategy for Blue Yellow Airlines plc. In your answer, evaluate all possible scenarios permitted by the data. Recommend one course of action, and justify your choice.