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need help ASAP Ford Motors has fust signed a contract to sell vehicles to a British importer for f5 million, payable in one year. Ford
need help ASAP
Ford Motors has fust signed a contract to sell vehicles to a British importer for f5 million, payable in one year. Ford Motors Wants to hedge the exchange rate risk. The current spot exchange rate is $1.1966/E, and the one-year forward rate is $1.1920/E. The annuat interest rate is 3.75% in the U.S and 4.2% in the UK: Ford is considering three possible options to hedge the risk. (1) sell the British pound proceeds from the sale forward, (2) borrow British pounds from Lloyds Banking Group aghinst the British pound recelvable, or (3) buy a put option with the exercise price of $1.1923/E with a premium of $0.01 for 10.00. - How much will the proceeds in U.S. dollars be from each hedging method if we assume that Ford exercises the option? Rank each method from the best to the worst based on the proceeds amount in U.S dollars. (7 points) - Which alternative would you recommend? (3 points) - What should the future spot exchange rate be, so Ford decides not to exereise the option? (5 points) Step by Step Solution
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