Assume you are an exporter in Turkey. You have sold drones worth of $50,000,000. Your receivable in US dollars is due in three months.

Three-month maturity TRY interest rate is 17% (annual) and same maturity USD interest rate is 5% (annual). For simplicity assume that the borrowing and lending interest rates are the same. Spot exchange rate is 19.41TL/US$ and three-month forward exchange rate is 22.86TL/US$ in the foreign exchange market. The company is cash rich and has no outstanding loans.

There are also currency options available in the financial market.

Exercise price of a call option with a maturity of 3 months is 23.00TL per US$. The call premium is 0.25TL per US$.

Exercise price of a put option with a maturity of 3 months is 23.00TL per US$. The put premium is 0.50TL per US$.

Check all that apply for managing this transaction exposure.

TRUE/FALSE?

Remain unhedged Answer TRUEFALSE

Economic Hedge Answer TRUEFALSE

Forward Hedge Answer TRUEFALSE

Capital Market Hedge Answer TRUEFALSE

Money Market Hedge Answer TRUEFALSE

Translation Hedge Answer TRUEFALSE

Option Hedge