Frozen plc, a UK based company, is expecting a $1,500,000 receipt and in addition it is due to pay a US supplier $4,013,350. These transactions are expected to happen in four months. It is now 1 April. Frozen plc wishes to evaluate alternative approaches to hedging its risk.

Exchange rates are as follows:

		$/
Spot		1.4241 1.4254
3 months forward		1.4340 1.4375
1 year forward		1.4430 1.4438

$/ currency futures; 125,000

June 1.4308

September 1.4362

December 1.4414

On 1 August the spot market rates have moved to 1.4375 1.4388 and the futures price is 1.4350.

Required:

Select two appropriate hedging techniques based on the information provided above and estimate the results. Provide a brief reasoned recommendation for which technique is more beneficial for Frozen plc

Task 1

Frozen plc, a UK based company, is expecting a $1,500,000 receipt and in addition it is due to pay a US supplier $4,013,350. These transactions are expected to happen in four months. It is now 1 April. Frozen plc wishes to evaluate alternative approaches to hedging its risk.

Exchange rates are as follows:

		$/
Spot		1.4241 1.4254
3 months forward		1.4340 1.4375
1 year forward		1.4430 1.4438

$/ currency futures; 125,000

June 1.4308

September 1.4362

December 1.4414

On 1 August the spot market rates have moved to 1.4375 1.4388 and the futures price is 1.4350.

Required:

Select two appropriate hedging techniques based on the information provided above and estimate the results. Provide a brief reasoned recommendation for which technique is more beneficial for Frozen plc