Question
Peter Export Co will receive 1 million Euro payment from its trade partner in Europe in 3 months. Euro's value is likely to decline in
Peter Export Co will receive 1 million Euro payment from its trade partner in Europe in 3 months. Euro's value is likely to decline in the coming months, so the company wants to hedge this Euro receivable.
(1) If the company uses forward hedge, they should
A.
buy
B.
sell
a 1 million Euro forward contract, in order to lock the price to
A.
buy
B.
sell
Euro 3 months later when they receive the payment.(2) If the company uses option contract to hedge the risk, they should
A.
sell
B.
buy
a
A.
call option
B.
put option
in order to be protected from the potential falling price of Euro. (3) If the company wants to use money market hedge strategy, they should now
A.
invest
B.
borrow
the equivalent amount of
A.
US Dollar
B.
Euro
from a bank and use it to exchange for
A.
US Dollar
B.
Euro
in order to avoid the exchange of currencies in 3 months later.
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