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Coleman Co. will pay 100,000 euros in a year and considers a money market hedging Let's consider the example of Coleman Co. in this week's
Coleman Co. will pay 100,000 euros in a year and considers a money market hedging
Let's consider the example of Coleman Co. in this week's lecture. Please provide steps and analysis associated with your answers to the questions below. 1. If the forward rate is EUR USD = 1.21 now, what is the cost of the forward hedging? 2. Assume now the annual U.S. interest rate is 7.5% and the annual euro interest rate is 4.5%. What is the cost of the money market hedging? 3. Assume now the call option has an exercise price of EUR/USD = 1.19 with a premium of $0.04. If the prediction of the spot rate in a year is as shown in the table below, what is the cost of the option hedging? 4. Which hedging technique is optimal for Coleman Co now? 5. Should Coleman Co. use the optimal hedging technique to hedge payables? Scenario The spot rate in a year Probability 1 1.17 40% 2 1.23 60% Let's consider the example of Coleman Co. in this week's lecture. Please provide steps and analysis associated with your answers to the questions below. 1. If the forward rate is EUR USD = 1.21 now, what is the cost of the forward hedging? 2. Assume now the annual U.S. interest rate is 7.5% and the annual euro interest rate is 4.5%. What is the cost of the money market hedging? 3. Assume now the call option has an exercise price of EUR/USD = 1.19 with a premium of $0.04. If the prediction of the spot rate in a year is as shown in the table below, what is the cost of the option hedging? 4. Which hedging technique is optimal for Coleman Co now? 5. Should Coleman Co. use the optimal hedging technique to hedge payables? Scenario The spot rate in a year Probability 1 1.17 40% 2 1.23 60%Step by Step Solution
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