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TEK wishes to hedge a EUR4,000,000 account receivable arising from a sale to Olivetti (Italy). Payment from Olivetti is due in three months. TEK's

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TEK wishes to hedge a EUR4,000,000 account receivable arising from a sale to Olivetti (Italy). Payment from Olivetti is due in three months. TEK's Italian unit does not have ready access to local currency borrowing, eliminating the money market hedge alternative. Citibank has offered TEK the following quotes: Spot rate 3 month forward rate Three month euro interest rate USD1.2000/EUR USD1.2180/EUR 4.2% per year 3 month put option on euros at strike price 3.4% of USD1.0800/EUR TEK's weighted average cost of capital 9.8% In the context of this information, match the following graph with the appropriate labels (note there are fewer blanks than available responses): J Gain A Choose... Unhedged Receivable $0 H* Premium Loss What is the label for line A? What is the label for line B? What is the label for line C? What is the label for line D? What is the label for line E? What is the label for line F? What is the label for line G? What is the label for line H? What is the label for line I? What is the label for line J? S(USD/EUR)90 days USD1.2100/EUR1 Put Option Hedge USD1.2180/EUR1 USD1.2260/EUR1 USD32,000 -USD32,000 Hedged Receivable Forward Market Hedge Short Forward Choose... B E D TEK wishes to hedge a EUR4,000,000 account receivable arising from a sale to Olivetti (Italy). Payment from Olivetti is due in three months. TEK's Italian unit does not have ready access to local currency borrowing, eliminating the money market hedge alternative. Citibank has offered TEK the following quotes: Spot rate 3 month forward rate Three month euro interest rate USD1.2000/EUR USD1.2180/EUR 4.2% per year 3 month put option on euros at strike price 3.4% of USD1.0800/EUR TEK's weighted average cost of capital 9.8% In the context of this information, match the following graph with the appropriate labels (note there are fewer blanks than available responses): J Gain A B $0 H D G Loss What is the label for line A? What is the label for line B? What is the label for line C? What is the label for line D? What is the label for line E? Unhedged Receivable Choose... Choose... Choose... Choose... What is the label for line F? Choose... What is the label for line G? What is the label for line H? What is the label for line I? What is the label for line J? Choose... Choose... Choose... Choose... E

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