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?