home / study / business / finance / finance questions and answers / lotus, a british automobile manufacturer, has contracted... Question: Lotus, a British automobile manufacturer, has cont... Lotus, a British automobile manufacturer, has contracted to buy engines from Toyota worth 33 billion. The invoice for the engines is payable in three months. Lotus also has receivables for cars sold to Marubeni, its Japanese dealer; these receivables are valued at 21 billion, also due in three months. Lotus policy is to hedge all residual currency positions. Disregard transaction costs and assume that the current spot exchange rates is 1 = 225 and the three-month forward rate is 1 = 223. Interest rates in the United Kingdom and Japan are 12.8 percent per annum and 6.0 percent per annum, respectively (assume that borrowing and lending rates are the same). Also, three month calls and put with a strike price of 1 = 223 are available at a premium of 1.5%. a. How can Lotus undertake an effective hedge in the forward market? b. How can Lotus undertake an effective money market hedge?