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Kansas Corporation, an American company, has a payment of 66.8 million due to Tuscany Corporation one year from today. At the prevailing spot rate of
Kansas Corporation, an American company, has a payment of 66.8 million due to Tuscany Corporation one year from today. At the prevailing spot rate of 0.90C/$, this would cost Kansas \$7,555,556, but Kansas faces the risk that the E/S rate will fall in the coming yeat, so that it will end up paying a higher amount in dollar terms. To hedge this risk, Kansas has two possible strategies. Strategy 1 is to buy 66.8 million forward today at a one-year forward rate of 0.89 C/S. Strategy 2 is to pay a premium of $118,000 for a one-year call option on 66.8 million at an exchange rate of 0.88E/S. a. Suppose that in one year the spot exchange rate is 0.85e/S. What would be Kansas's net dollac cost for the poyable under each strategy? Note: Round your answer to the nearest whole dollar amount. b. Suppose that in one year the spot exchange rate is 0.95c/s. What would be Kansas's net dollar cost for the payable under each strategy? Note: Round your answer to the nearest whole dollar amount
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