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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
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 0.25 TL per US $. Exercise price of a put option with a maturity of 3 months is 23.00TL per US $. The put premium is 0.50 TL per US\$. If you the outcome is uncertain. In this case, the greater the of the , the higher will be your receivable in , which is better for your exposure. In order to hedge this exposure, you need to $50,000,000 forward 3 months. With this hedging strategy, your receivable will be
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