Required:

(a) Assume you are the lead hedge strategist at ANZ Bank. ANZ has borrowed US$1 Bn and the first repayment in due in 3 months. would you recommend ANZ to hedge its exposure to exchange rate risk? Critically analyse your recommendation to hedge or not. (350 words)

(8 marks)

(b) Irrespective of your answer to (a), assume you are required to hedge exchange rate risk. Between futures and options (single and multiple option strategies/option structures) which strategy/instrument would you recommend and why? Provide the reason for your choice above all other strategies. (350 words)