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Mattel is a US-based company whose sales are roughly two thirds in dollars (Asia and the Americas) and one third in euros (Europe). In September

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Mattel is a US-based company whose sales are roughly two thirds in dollars (Asia and the Americas) and one third in euros (Europe). In September Mattel delivers a large shipment of toys (primarily Barbies and Hot Wheels) to a major distributor in Antwerp, Belgium. The receivable, 30 million, is due in 90 days, standard terms for the toy industry in Europe. Mattel's treasury team has collected the following currency and market quotes. The company's foreign exchange advisors believe the euro will be at about $1.1800/ in 90 days. Advise Mattel on which hedging alternative is probably preferable if it prefers to play it safe. Which alternative should Mattel choose if it is willing to take a reasonable risk and has a directional view that the euro may be appreciating vs. the dollar during the next three months? What is the break-even rate between different hedges? Prepare an Excel file that shows different hedges with concise explanation for the answers. Spot rate: $1.2186/ Credit Suisse 90-day forward quote: $1.2170/ Barclays 90-day forward quote: $1.2210/ Mattel's cost of capital: 9.600% 90-day euro investment (deposit) rate: 4.400% 90-day euro borrowing rate: 6.400% Three-month put option on euros at strike price of $1.1600/: 3.40% premium

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