Scenario:

F$.$ Mayer Imports is assessing its hedging strategy for $2025$ amidst heightened geopolitical

tensions in Europe. Two scenarios are considered: a low$-$risk scenario with expected revenue

of $A$$$250$ million and a high$-$risk scenario with a $38\mathrm{.}5\%$ revenue decline.

Key Assumptions:

All revenues and costs are realized at year$-$end.

Import costs are fixed at $70$ million.

Operational costs $($e$.$g$.,$ labour costs$)$ are $30\%$ of revenue $($in addition to import costs$).$

Exchange rates are given for spot, forward, call, and put options.

Current Exchange Rates $($bid$-$ask$)$:

Spot: $\frac{0\mathrm{.}65}{A}$$ $-\frac{0\mathrm{.}66}{A}$$

Forward: $\frac{0\mathrm{.}62}{A}$$$-\frac{0\mathrm{.}63}{A}$$

Call Option: Premium $0\mathrm{.}026,$ Strike $0\mathrm{.}63$

Put Option: Premium $0\mathrm{.}025,$ Strike $0\mathrm{.}60$

F$.$ Mayer finance team's $1-$year forecasts:

Exchange rate will be $\frac{0\mathrm{.}65}{A}$$$-\frac{0\mathrm{.}66}{A}$$ if the investors $($and speculators$)$ risk levels remain

unchanged during $2025.$

Exchange rate will be $\frac{0\mathrm{.}55}{A}$$$-\frac{0\mathrm{.}57}{A}$$ if the investors $($and speculators$)$ consider the Euro

a safe haven currency during $2025.$

Exchange rate will be $\frac{0\mathrm{.}69}{A}$$$-\frac{0\mathrm{.}70}{A}$$ if the investors $($and speculators$)$ consider the

Australian dollar a safe haven currency during $2025.$

Assume a low geopolitical risk scenario.

a$)$ If F$.$ Mayer decides to purchase options and the spot rate at year$-$end is $\frac{0\mathrm{.}65}{A}$$ $-$

$\frac{0\mathrm{.}66}{A}$$$,$ how would it affect the company's import costs?

b$)$ If F$.$ Mayer decides to purchase options, and the Euro becomes a safe haven currency, how

would this impact the company's import costs?

Assume a high geopolitical risk scenario and the exchange rate remains at $\frac{0\mathrm{.}65}{A}$$$-\frac{0\mathrm{.}66}{A}$$

during $2025.$ What is your cash flow and cash flow as a percentage of revenues if you

a$)$ do not hedge exchange rate risk?

b$)$ hedge exchange rate risk using forward contracts?

c$)$ hedge exchange rate risk using options contracts?

Assume a high geopolitical risk scenario and the Euro becomes a safe haven currency during $2025.$

What is your cash flow and cash flow as a percentage of revenues if you

a$)$ do not hedge exchange rate risk?

b$)$ hedge exchange rate risk using forward contracts?

c$)$ hedge exchange rate risk using options contracts?