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please help!! Kansas Corporation, an American company, has a payment of 6.6 million due to Tuscany Corporation one year from today. At the prevailing spot
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Kansas Corporation, an American company, has a payment of 6.6 million due to Tuscany Corporation one year from today. At the prevailing spot rate of 0.90/$, this would cost Kansas $7,333,333, but Kansas faces the risk that the /$ rate will fall in the coming year, so that it will end up paying a higher amount in dollar terms. To hedge this risk, Kansas has two possible strategles. Strategy 1 is to buy 6.6 million forward today at a one-year forward rate of 0.89/$. Strategy 2 is to pay a premium of $116.000 for a one-year call option on 6.6 million at an exchange rate of 0.88C/S. a. Suppose that in one year the spot exchange rate is 0.85/$. What would be Kansas's net dollar cost for the payable under each strategy? Note: Round your answer to the nearest whole dollar amount. b. Suppose that in one year the spot exchange rate is 0.95/$. What would be Kansas's net dollar cost for the payable under each strategy? Note: Round your answer to the nearest whole dollar amount Step by Step Solution
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