Question
Marcus Co. is expecting to receive 150,000 euros in one year. Marcus expects the spot rate of the euro to be $1.05 in a year,
Marcus Co. is expecting to receive 150,000 euros in one year. Marcus expects the spot rate of the euro to be $1.05 in a year, so it decides to avoid exchange rate risk by hedging its receivables. The spot rate of the euro is quoted at $1.10 The strike price of put and call options are $1.06 and $1.05, respectively. he premium on both options is $.02. The one-year forward rate exhibits a 1.65 percent premium. Assume there are no transaction cost
How many U.S dollars will the Marcus Co. receive if it sells euro forward?
How many U.S dollars will the Marcus Co. receive if it buys put options
How many U.S dollars will the Marcus Co. receive if it doesn't hedge and the forward rate is indeed the spot rate in one year
Should Marcus hedge?
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Fundamentals of Financial Management
Authors: Eugene F. Brigham, Joel F. Houston
15th edition
1337671002, 978-1337395250
