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If the exchange rate turns out to be $1.02 per euro in one year, what was the cost of hedging (in $)? Intro Blunt Aesthetics
If the exchange rate turns out to be $1.02 per euro in one year, what was the cost of hedging (in $)?
Intro Blunt Aesthetics is a U.S. fashion retailer which imports products from Europe. The company will need 100.000 euros () in one year to pay its Italian and French suppliers. The firm expects the following exchange rate scenarios and probabilities: Scenario Probability Spot rate in one year $1.07 A 0.1 B $1.12 0.4 $1.17 0.5 The spot rate is $1.12 per euro and the one-year forward rate is $1.123 per euro. The U.S. interest rate is 8% and the euro interest rate is 2%. A call option on euros expiring in one year costs $0.038 per euro and has an exercise price of $1.12 per euroStep by Step Solution
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