Question Number 1

Suppose you work in the finance division of a Norwegian multinational shipping company. Today your firm just signed a contract to export gas to Italy using one of your ships. The contract commits the Italian government to pay 250 million euros (EUR) in 3 months. Given the uncertainty relative to the pandemic, as part of the finance division you are asked to come up with the best hedging option comparing forward, money market instruments, and option contracts. 1-year interest rate in Norway: 2.5% - 1-year interest rate in Euro zone: 1% - Current spot rate, S(NOK/EUR) = NOK/EUR 2.242.

Listed options Strike Premium - Call option: NOK/EUR 2.2 NOK/EUR 0.001 - Put option: NOK/EUR 2.2 NOK/EUR 0.001 Assume that the size of each contract is EUR 250,000.

D) Perform the hedging using options and compute the minimum amount of revenues in NOK for the firm. You have the two following options you can choose: - Euro option, maturity 3 months.