Stockholm purchased a commercial property for 136 million euros. Paid 15 % of the purchase price upfront as down payment deposit.

The rest was agreed to be paid upon closing, which was agreed to take place after 6 months, i.e. end of July 2020.

Identified that about 10 % of the total purchase amount could be financed by the retained earnings of the company. No cash available.

May opt for a short-term loan in USD for remaining amount that is due. Federal fund rate (FFR) has been .0025 %

Interest rate (in this case, mortgage rates for the purchase of the property) is 4.6 %.

RA may also opt for a very short-term bank loan roughly at the same interest rate.

Euro deposit account in Stockholm pays only 2.5 % return per year.

The mortgage or the bank loan in USD can be arranged immediately and the cash amount could be available by the end of February in the RAs treasury department account.

Unless the borrowing or lending rates are dictated, RA uses its WACC (currently = 8.00 %) in all its computations that involve time value of money.

Though the currency rates between the dollar and the euro were roughly stable in the vicinity of $1.10 for one euro, it does not seem to be the case anymore.

Using consensus forecasting, has reached a decision that the projected value of the euro per USD may not reach $1.20 by the end of July. Further, they have obtained a 6-month forward rate on Euro to be $ 1.18 per euro.

Conclude that it could buy a 6-month call options contract on the remaining euro due amount at the strike price of $1.19 with a premium cost of 1.2 %.

>What is the best way to pay off remaining balance?

Armed with the above information, the RA treasury analyst was then confused as to what to do. What is the best alternative for the company?

What are the best alternatives for this company?

Briefly describe alternatives to follow.

What the pros and cons of each alternative may be.

Managing this exposure was inadvertently postponed. Consider the information in this case to be as of the date of actual transaction, i.e., end of January, 2020.