Question
Dell is selling 30,000 units in Europe at an average price of 1,500 per unit. Both the spot and forward exchange rates are $1.20/. The
Dell is selling 30,000 units in Europe at an average price of 1,500 per unit. Both the spot and forward exchange rates are $1.20/. The cost of each unit in dollars is $1,300 per unit. The elasticity of demand for Dell computers in Europe is = 1.5.Now consider a depreciation of Euro (relative to US Dollar) from $1.20/ euro to $1.08/euro.
Which of the following would be an effective hedging when passthrough =0.8
A) buy $45 million forward
B) sell 45 million (euro) forward
C) buy 24.75 million (euro) forward
D) buy put options on euros with contract size close to 24.75 million (euro)
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