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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
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 | 1.107373206 | ||
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. nothing | |||||
and the spot rate in one year turns out to be 1.1105? |
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