Assume that Coca Cola (KO) believes it will receive 150 million Israeli Shekels in 90 days.

The current spot rate is $0.298 per ILS (Israeli Shekel = ILS)

The 90 day future rate is $0.301 per ILS

Annualized money market rates are 1.18% in Israel and 6.79% in the US

A 90 day call with a strike of $0.285 is selling for $0.021

A 90 day put with a strike of $0.325 is selling for $.023

a. If you wanted to hedge, explain how KO could do that with the future, the call, and the put (would it buy or sell each and why)?

b. If KO wanted to do a money market hedge, explain how that would be constructed (where would KO borrow money and where would it invest)?

Suppose KO expected the spot price in 90 days to be:

i. $0.25 with 4% probability

ii. $0.27 with 8% probability

iii. $0.29 with 28% probability

iii. $0.29 with 28% probability

iii. $0.29 with 28% probability

iii. $0.29 with 28% probability

c. If KO remained unhedged, what is its expected revenue in dollars in 90 days?

d. If KO used a future hedge, what is its expected revenue in dollars in 90 days?

e. If KO used a call hedge, what is its expected revenue in dollars in 90 days?

f. If KO used a put hedge, what is its expected revenue in dollars in 90 days?

g. If KO used a money market hedge, what is its expected revenue in dollars in 90 days?

h. If KO is risk neutral, which approach should they take and why?

i. If KO is some degree of risk averse, are there any of the approaches that shouldnt even be considered (because they are completely dominated by another approach)? To do this, you need to calculate the % standard deviation from expected value to assess level of risk.

(30 Points) Intel has borrowed money from Israel and has to repay 40 million ILS in 90 days. Repeat the analysis of the prior question for Intel (parts a through i).