Answered step by step
Verified Expert Solution
Question
1 Approved Answer
I need the answers to all the blank spaces please Maria Majid, Inc. is a specialty materials and metals company located in Detroit, Michigan. The
I need the answers to all the blank spaces please
Maria Majid, Inc. is a specialty materials and metals company located in Detroit, Michigan. The company specializes in specific precious metals and materials which are used in a variety of pigment applications in many other industries including cosmetics, appliances, and a variety of high-tinsel metal fabricating equipment. Maria just purchased a shipment of phosphates from Morocco for 6,000,000, dirhams, payable in six months. Maria's cost of capital is 8.600%. Six-month call options on 6,000,000 dirhams at an exercise price of 10.00 dirhams per dollar are available from Bank Al-Magbrub at a premium of 2%. Six-month put options on 6,000,000 dirhams at an exercise price of 10.00 dirhams ner dollar are available at a nremium of 3%. Comnare and contrast alternative wavs that Maria might hedge its foreign Six-month forward rate, dirhams /$ 10.40 Cost of settlement in six months (US\$) $ Certain. 3. Money market hedge. Exchange dollars for dirhams now, and invest for six months. 4. Call option hedge. (Need to buy dirhams = call on dirhams) Option principal Current spot rate, dirhams /$ The premium cost of the option Option premium (principal/spot rate x%pm ) If the option is exercised, the dollar cost at a strike price of 10.00 dirhams /$ Plus, the premium is carried forward six months (pm x 1.07, WACC) Total net cost of call option hedge if exercised 6,000,000.00 10.00 $2.000% 12,000.00 $ 600,000.00 12,840.000 $ Maximum. The lowest cost certain alternative is the forward. If Maria were to expect the dirham to depreciate significantly over the next six months, she may choose the call optionStep 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