Please consider the following information for the next 5 questions. Gilead Sciences, Inc. (U.S. based MNC) will receive 450,000 euros in one year. The spot exchange rate today is $1.1600 per euro. It observes that 1. The one-year interest rate for euros is 5%, and the one-year interest rate for U.S. dollars is 2%. 2. In the option market, there is one-year call option or put option available. Both options have the same exercise price of $1.1300 per euro, and a premium of $0.015 per euro. 3. In the forward market, the one-year forward rate exhibits a 4% discount from the current spot exchange rate. How should Gilead Sciences utilize the forward market to hedge the exchange rate risk for its future receivables? And what shall be the amount received based on this hedging strategy? (Note: Gilead Sciences can only buy or sell the forward contract at the forward rate available in the forward market described in bullet 3.) Buy a one-year forward contract for the amount of 450,000 euros at the forward rate of $1.1136. One year later, Gilead Sciences will fulfill its obligation and receive the amount of $501,120. Sell a one-year forward contract for the amount of 450,000 euros at the forward rate of $1.2064. One year later, Gilead Sciences will fulfill its obligation and receive the amount of $542,880. Buy a one-year forward contract for the amount of 450,000 euros at the forward rate of $1.2064. One year later, Gilead Sciences will fulfill its obligation and receive the amount of $542,880. Sell a one-year forward contract for the amount of 450,000 euros at the forward rate of $1.1136. One year later, Gilead Sciences will fulfill its obligation and receive the amount of $501,120. If Gilead Sciences decides to use money market hedging strategy to hedge its receivables, how shall Gilead Sciences implement the strategy? Gilead Sciences should first borrow U.S. dollars for the amount of $336,538.4615. Gilead Sciences will then go to the foreign exchange market to exchange the amount borrowed into euros which yields Gilead Sciences the amount of 390,384.6153 euros. Gilead Sciences will deposit the amount exchanged at the bank in the Europe. One year later, Gilead Sciences will pay off its U.S. dollar loan using the euro payments received. Gilead Sciences should first borrow euros for the amount of 428,571.4286 euros. Gilead Sciences will then go to the foreign exchange market to exchange the amount borrowed into U.S. dollars which yields Gilead Sciences the amount of $497,142.8571. Gilead Sciences will deposit the amount exchanged at the bank in the U.S.. One year later, Gilead Sciences will pay off its euros loan by using the euro payments received. Gilead Sciences should first borrow euros for the amount of 450,000 euros. Gilead Sciences will then go to the foreign exchange market to exchange the amount borrowed into U.S. dollars which yields Gilead Sciences the amount of $522,000. Gilead Sciences will deposit the amount exchanged at the bank in the U.S.. One year later, Gilead Sciences will pay off its euro loan using the euro payments received. Gilead Sciences should first borrow U.S. dollars for the amount of $387,931.0345. Gilead Sciences will then go to the foreign exchange market to exchange the amount borrowed into euros which yields Gilead Sciences the amount of 450,000 euros. Gilead Sciences will deposit the amount exchanged at the bank in Europe, One year later, Gilead Sciences will nownff itsinanged amount of 450,000 euros. Gilead Sciences will deposit the amount exchanged at the bank in Europe. One year later, Gilead Sciences will pay off its U.S. dollar loan by using the euro payments received. Question 7 (3.33 points) How many U.S. dollars will Gilead Sciences end up receiving for its 450,000 euro receivable by using money market hedge? $521,610.2103.$507,085.7143.$532,440.00$537,352.9412. Question 8 (3.33 points) If Gilead Sciences decides to use options contracts to hedge its receivables, Gilead Sciences shall Buy one-year put options of 450,000 euros with the exercise price $1.1300 per euro. Buy one-year call options of 450,000 euros with the exercise price $1.1300 per euro. Sell one-year put options of 450,000 euros with the exercise price $1.1300 per euro
