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Brooks Inc.. has future receivables of 4,000,000 New Zealand dollars (NZS) in one year. It must decide whether to use options or a money market
Brooks Inc.. has future receivables of 4,000,000 New Zealand dollars (NZS) in one year. It must decide whether to use options or a money market hedge to hedge this position. Showing and explaining all your workings, illustrate whether Brooks Inc. would be better off using an options hedge or a money market hedge. Give reasons for your conclusion. Spot rate of NZS=$.54 One-year call option: Exercise price =$.50; premium =$.07 One-year put option: Exercise price =$.52; premium =$.03 One-year deposit rate One-year borrowing rate Forecasted spot rate of NZ\$
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