Indonesia is a natural resource-rich country whereby more than 90% of the country's total exports comes from commodities which are linked to these natural resources. Benefiting from its tropical environment, Indonesia is also regarded as one of the world's greatest coffee producers. Indonesian exports for both the robusta and the arabica coffee varieties and is currently rated third in the world in terms of output. Whilst in terms of value, Indonesia's total export value for this produce was only USD 808 million of the overall global export value for raw coffee bean products was USD 18.7 billion in tates, the United Kingdom, India, China, 2019. Brazil, Spain, Italy, Turkey, Argentina, the United Thailand, Japan, Vietnam, Pakistan, Malaysia, and Hong Kong are among the export destinations.

The economic potential of the coffee industry offers a good growth opportunity for PT Kopi Ceria Indonesia (KCI), a family-owned business that has been involved in cultivation and trading varieties of coffee since 1972. The company main business has since focused more on the sourcing, trading and processing of high-quality Robusta and Arabica coffee. They have successfully maintained high standard of process and quality control in handling the coffee supply chain, processing, and trading on an industrial scale. KCI serves both domestic and international markets. The company markets its final product of the roasted coffee beans to variety of parties from home brewers, cafes, and B2B. Arabica coffee, Robusta coffee, and green coffee bean are among the company's offerings. Currently KCI plans to optimize its business, vigorously increasing processing capacity of premium arabica coffee from its established suppliers coming from various places across the archipelago, ranging from Sumatra, Sulawesi Java, Bali, Sumbawa, Flores, and Papua. In general, Indonesia's arabica coffee varieties have low acidity and strong bodies, which make them ideal for blending with higher-acidity coffees such as those produced by Brazil and Vietnam. Within this context the company is contemplating expanding its business by cooperating with coffee processing companies in Brazil and Vietnam.

Question :

The table below summarizes the USD/IDR currency option and futures quotes available to KCI :

1) KC's processed coffee beans are exported to several countries, including the United States. This is the company's main export destination, which by itself generates an overall monthly export value of USD 600,000. Based the specific figures of the USD/IDR currency quotes presented above in your opinion, which type of financial asset contract should be purchased or sold by KCI to protect its export value? Further assuming that on December 1st the value of the USD/IDR spot rate is at 13,188.56, what is the profit/loss for each contract? Use calculations to support your argument.

The following is some of the data that the firm has gathered : VAN Indonesia 3.5% Brazil 5.61% Vietnam 4.5% 2.2% 3.2% 3.5% Nominal interest rate Expected inflation 1 year forward rate BRL NAN 1 BRL = 2,014.84 IDR WA 1 year 1 IDR = 1.55 VND WAV forward rate VND Spot Rate 1 BRL = 1 IDR = 1.60 VND 2,518.55 IDR Vietnamese Indonesian Dong/Indonesian Rupiah/ Rupiah Brazilian Real -14% +2 % -10% Relative Income level 14,181.25 5% Spot Rate (Nov 1) Option information 1 month Call Option Exercise Price (% above spot) Call option Option Premium (% of exercise price) 1.55% 2.5% 1.80% 1 month Put option Exercise Price (% above spot) Put option premium (% of exercise price) Futures Contract Information Futures price (Dec, 1) Contract Size Forward Contract Information 30-day Forward Rate 13,472.19 1000 13,450.92 The following is some of the data that the firm has gathered : VAN Indonesia 3.5% Brazil 5.61% Vietnam 4.5% 2.2% 3.2% 3.5% Nominal interest rate Expected inflation 1 year forward rate BRL NAN 1 BRL = 2,014.84 IDR WA 1 year 1 IDR = 1.55 VND WAV forward rate VND Spot Rate 1 BRL = 1 IDR = 1.60 VND 2,518.55 IDR Vietnamese Indonesian Dong/Indonesian Rupiah/ Rupiah Brazilian Real -14% +2 % -10% Relative Income level 14,181.25 5% Spot Rate (Nov 1) Option information 1 month Call Option Exercise Price (% above spot) Call option Option Premium (% of exercise price) 1.55% 2.5% 1.80% 1 month Put option Exercise Price (% above spot) Put option premium (% of exercise price) Futures Contract Information Futures price (Dec, 1) Contract Size Forward Contract Information 30-day Forward Rate 13,472.19 1000 13,450.92