Below are some details about the financial/economic environment of the firm:

Firm XYZ:

1. Your firm sells goods domestically and abroad.

2. The firm has a payment due in 3 months time worth 400,000 EUR to foreign

supplier.

3. A U.S. importer owes the firm 300,000 USD, due in 4 months.

Economic environment:

1. RBA is considering implementing an expansionary monetary policy by lowering

the cash rate.

2. Economic growth of your foreign markets, where you export your goods, has

declined relative to domestic economic growth.

3. The firm is considering issuing 500,000 USD bonds with a maturity of 1 year.

Questions:

2. Hedging strategies: show knowledge of different strategies available in the market (5

points)

a. Show calculation of hedgeo hedge decisions under different strategies (15

points)

b. Use currently available information (3 points)

For example, for interest rates you can find the central bank rate of the

foreign market

c. Show where you source your data from (2 points)

3. Recommendation: which strategy should you use? Why? Use your analysis to

provide the recommendation (5 points)

4. Appendix: exempt from word limit, but should only include figures/data (2 points)

Additional information: 1. Please use the rate information provided in the table. This means you will have different rates, depending on when you source the information (e.g. exchange rates change continuously). 2. Look for spot rate forecasts (banksewspapers offer these) to use for calculating the profitability of a hedging strategy when you need a future spot rate. State why you are using this rate (e.g. such and such predict that AUD/USD = X in 3 months, and using this rate...) Table 1: Relevant information Currency Price of Price of Exercise Exercise Fwd rate Spot rate interest pair call put Put Call S(AUD/EUR) 0.007 0.01 S+0.02 S - 0.15 1.6 see current see current available available* S(AUD/USD) 0.006 0.008 S+0.015 S-0.10 1.35 see current see current available available * see current available = use a reliable source to find the data (e.g. Yahoo Finance) Notes on the table: To determine the exercise rate of a put, for example for AUD/USD, search for the current spot rate for the currency pair, and then add 0.02 to the spot