Question

General Electric (GE), an American company, is exporting medical equipment to Mexico, and is expected to receive MXN100m (Mexican Peso) in 3 months. Spot rate USD/MXN is 18.60, and the 3-month forward rate was 19.00. GE negotiated a forward contract with a bank to sell MXN Peso 100m forward in three months. Three months later, the spot rate of the USD/MXN Peso is 19.33. What is the total amount that GE will receive in USD?

Question

Peugeot SA, a French company, is importing steel from England, and is expected to pay GBP50m in 6 months. Spot rate of GBP/EUR 1.14. Call option rate on GBP/EUR with delivery in 6-month is 1.19 with premium of EUR0.01. In order to hedge its position, Peugeot decided to buy the call option. Six months later, if the spot rate of the GBP/EUR is 1.21 will Peugeot exercise the option? What is the total amount that Peugeot will pay in EUR?

Question

The Coca Cola company is expecting to receive GBP8m in one year in Sales proceeds from its British distributor. Coca Cola expects the spot rate of GBP/USD to be 1.17/1.19 in a year, so it decides to avoid exchange rate risk by hedging its receivables. The current spot rate of the GBP/USD is 1.23/1.25. The strike price of put and call options are 1.25 and 1.245 respectively. The premium on both options is $0.02. The one-year forward rate exhibits a 2% premium. What is the best possible hedging strategy and how many U.S. dollars Coca Cola will receive under this strategy?