Question
DeKalb, Inc. is a U.S. company that sells apparel in the U.S. and in New Zealand. It is due to receive NZ$10,000,000 in 3 months
DeKalb, Inc. is a U.S. company that sells apparel in the U.S. and in New Zealand. It is due to receive NZ$10,000,000 in 3 months time from its New Zealand distributor.
a. If the 3 months ask forward rate for the NZ$ is $0.55, and the bid/ask spread for 3-mos NZ$ is 9.09%, how many dollars would DeKalb receive if it employs a forward hedge? Please show your calculations.
b. If the following currency options are available, how many dollars would DeKalb receive if it employs an option hedge? Please show your calculations.
3 months NZ$ options available (US$/NZ$) | Premium per NZ$1 |
0.5000C | $0.015 |
0.5000P | $0.010 |
c. Which of the alternatives from parts a and b is the better one? If DeKalb uses that better option, and the actual spot rate in 3 months is Nz$1=$0.55, how much money has DeKalb saved/lost compared to not hedging? Please show your calculations.
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