Options Market Hedge (Including Trading Range)

#4 Given Assumptions and Opening description excel format of Options Market Hedge

HOMECENTIRE 9- Homecentre (SODIMAC), a Chilean retailer with stores across Latin America imports furniture from CUBE Design, an Indonesian manufacturer. CUBE has agreed to receive payment in Chilean pesos in order to faciliate Homecentres purchase. Homecentre has negotiated 600 containers of furniture to be distributed amongst its retail network for a fee of 3,785,600,000 Chilean Pesos. CUBE wishes to hedge this account receiveable since payment is due in 2 months and exchange rates could change. CUBE design's Foreign Exchange advisors believe the exchange rate will be at IDR 22,47345/CLP in 2 months. Advise CUBE Design which hedging alternative is preferable. B C ASSUMPTIONS Account Recievable Minimum acceptable amount to be received Strike price of a put option in 2 months Spot rate 2-month forward rate Premium of the put option 3.785.600,0000 aLP 83.150.000,0000 IDR 224734 IDR/CLP 224821 IDR/CLP 224510 IDR/CLP 1,7 % 224536 IDR/CLP Forcast spot in 2 months Annual CLP bank savings rate Annual CLP bank borrowing rate CUBE Annual cost of capital (WACC) Annual IDR bank savings rate Annual IDR borrowing rate 4 % 8% 5% 6% 7% Minimum acceptable exchange rate IDR/CLP 3.698.497,92 SAMUEL Unhedged Strategy Account Recievable Spot rate Three possible scenarios: a) Spot rate b) Foreign exhange advisors forecast c) Foreign exchange advisors forecast Scenario A Scenario B Scenario C Forward Hedge 2. 2 months later Today Account Recievable 2-month forward rate Future value Difference with minimum acceptable Money Market Hedge 2 months later 3. Today Annual CLP bank borrowing rate 2 months CLP bank borrowing rate CLP 3.785.600,0000/ 1,013 CLP 3.785.600,0000* Spot rate (22,4821 IDR/CLP) Invest in Indonesia Annual IDR bank savings rate 2 months IDR bank savings rate Pay of Debt Annual IDR borrowing rate 2 months IDR Bbank borrowing rate Options Market Hedge INCLUDE TRADING RANGE (BOOK PAGE: 286) 4. HOMECENTIRE 9- Homecentre (SODIMAC), a Chilean retailer with stores across Latin America imports furniture from CUBE Design, an Indonesian manufacturer. CUBE has agreed to receive payment in Chilean pesos in order to faciliate Homecentres purchase. Homecentre has negotiated 600 containers of furniture to be distributed amongst its retail network for a fee of 3,785,600,000 Chilean Pesos. CUBE wishes to hedge this account receiveable since payment is due in 2 months and exchange rates could change. CUBE design's Foreign Exchange advisors believe the exchange rate will be at IDR 22,47345/CLP in 2 months. Advise CUBE Design which hedging alternative is preferable. B C ASSUMPTIONS Account Recievable Minimum acceptable amount to be received Strike price of a put option in 2 months Spot rate 2-month forward rate Premium of the put option 3.785.600,0000 aLP 83.150.000,0000 IDR 224734 IDR/CLP 224821 IDR/CLP 224510 IDR/CLP 1,7 % 224536 IDR/CLP Forcast spot in 2 months Annual CLP bank savings rate Annual CLP bank borrowing rate CUBE Annual cost of capital (WACC) Annual IDR bank savings rate Annual IDR borrowing rate 4 % 8% 5% 6% 7% Minimum acceptable exchange rate IDR/CLP 3.698.497,92 SAMUEL Unhedged Strategy Account Recievable Spot rate Three possible scenarios: a) Spot rate b) Foreign exhange advisors forecast c) Foreign exchange advisors forecast Scenario A Scenario B Scenario C Forward Hedge 2. 2 months later Today Account Recievable 2-month forward rate Future value Difference with minimum acceptable Money Market Hedge 2 months later 3. Today Annual CLP bank borrowing rate 2 months CLP bank borrowing rate CLP 3.785.600,0000/ 1,013 CLP 3.785.600,0000* Spot rate (22,4821 IDR/CLP) Invest in Indonesia Annual IDR bank savings rate 2 months IDR bank savings rate Pay of Debt Annual IDR borrowing rate 2 months IDR Bbank borrowing rate Options Market Hedge INCLUDE TRADING RANGE (BOOK PAGE: 286) 4