Answered step by step
Verified Expert Solution
Question
1 Approved Answer
FIN4180 Group assignment 2: How to manage/hedge recievable. Huntsman Corporation uses a variety of Forex hedging strategies. In 2018, the company disclosed is has $581
FIN4180 Group assignment 2: How to manage/hedge recievable. | ||||||||||||
Huntsman Corporation uses a variety of Forex hedging strategies. In 2018, the company disclosed is has $581 million in Euro denominated debts. | ||||||||||||
as hedge for net investments in Europe. It has $151 million in forward contract that is about one year in maturity. | ||||||||||||
It also reported that the company closed out a $200 million cross currency swap agreement. | ||||||||||||
For the $581 Euro demoninated debts, it reported gain of $35 millom, loss of $96 million and gain of $27 million in 2018, 2017 and 2016 respectively. | ||||||||||||
Let's see how that $151 million in Euro forward can be hedged: | ||||||||||||
US rate | 3% | |||||||||||
Germany | 5% | |||||||||||
Spot | 1.1235 | N/A forward | 1.107373 | |||||||||
1-year forward at 1.1075 | ||||||||||||
1-year call option with strike of $1.1075 is $0.01, 1-year put option with strike of 1.1075 is $0.015 | ||||||||||||
What's the gains/losses if HUN hedged with: 1 money market 2. forward 3. option 4. no hedge | ||||||||||||
and the spot rate in one year turns out to be 1.1105? | ||||||||||||
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started