(Payable Hedge)

Assume that Freno Corp (in USA). will need 300,000 pound in 180 days. It considers using option, forward, or no hedging. Use the following information and answer the followings.

Call option: premium of $0.02, Exercise price $1.61

Put option: premium of $0.03, Exercise price $1.58.

Spot rate of pound is $1.60 and 180 day forward rate is $1.62

The forecasted future spot rate in 180 days is:

On the due day (180 days later) the exchange rate turns out to be $1.57.

1-a. What is the amount that Fresno pays if they used forward hedge?

Ans: ______________________

1-b. What is the amount that Fresno pays if they use no hedge (naked)?

Ans: ______________________

1-c. What is the amount that Fresno has to pay if they use option hedge?

Ans: ______________________

(Receivable Hedge)

Assume that Asis Corp. (in South Korea) will receive 1,000,000 pound in 180 days. It considers using forward, option, or no hedging. Use the following information and answer the followings.

Call option: premium of KRW 78 , Exercise price KRW 1,600.00

Put option: premium of KRW 98, Exercise price KRW 1,620.00

Spot rate of pound is $1,600 and 180 day forward rate is KRW1, 550.00

The forecasted future spot rate in 180 days is:

If the BP turns out to be KRW 1520.00 on the due date (180 days later)

2-a. What is the amount that Asis receives from forward Hedge?

Ans: _________________________________

2-b. What is the amount that Asis receives from Naked Hedge?

Ans: __________________________________

2-c. What is the amount that Asis receives from Option Hedge?

Ans: ____________________________