Question
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. TEKs Italian
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. TEKs 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 | USD1.2000/EUR |
| 3 month forward rate | USD1.2180/EUR |
| Three month euro interest rate | 4.2% per year |
| 3 month put option on euros at strike price of USD1.0800/EUR | 3.4% |
| TEKs 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):
| What is the label for line A? | Choose...S(USD/EUR)90 days-USD32,000USD1.2180/EUR1PremiumUnhedged ReceivableUSD32,000USD1.2260/EUR1Forward Market HedgeHedged ReceivableShort ForwardPut Option HedgeUSD1.2100/EUR1 |
| What is the label for line B? | Choose...S(USD/EUR)90 days-USD32,000USD1.2180/EUR1PremiumUnhedged ReceivableUSD32,000USD1.2260/EUR1Forward Market HedgeHedged ReceivableShort ForwardPut Option HedgeUSD1.2100/EUR1 |
| What is the label for line C? | Choose...S(USD/EUR)90 days-USD32,000USD1.2180/EUR1PremiumUnhedged ReceivableUSD32,000USD1.2260/EUR1Forward Market HedgeHedged ReceivableShort ForwardPut Option HedgeUSD1.2100/EUR1 |
| What is the label for line D? | Choose...S(USD/EUR)90 days-USD32,000USD1.2180/EUR1PremiumUnhedged ReceivableUSD32,000USD1.2260/EUR1Forward Market HedgeHedged ReceivableShort ForwardPut Option HedgeUSD1.2100/EUR1 |
| What is the label for line E? | Choose...S(USD/EUR)90 days-USD32,000USD1.2180/EUR1PremiumUnhedged ReceivableUSD32,000USD1.2260/EUR1Forward Market HedgeHedged ReceivableShort ForwardPut Option HedgeUSD1.2100/EUR1 |
| What is the label for line F? | Choose...S(USD/EUR)90 days-USD32,000USD1.2180/EUR1PremiumUnhedged ReceivableUSD32,000USD1.2260/EUR1Forward Market HedgeHedged ReceivableShort ForwardPut Option HedgeUSD1.2100/EUR1 |
| What is the label for line G? | Choose...S(USD/EUR)90 days-USD32,000USD1.2180/EUR1PremiumUnhedged ReceivableUSD32,000USD1.2260/EUR1Forward Market HedgeHedged ReceivableShort ForwardPut Option HedgeUSD1.2100/EUR1 |
| What is the label for line H? | Choose...S(USD/EUR)90 days-USD32,000USD1.2180/EUR1PremiumUnhedged ReceivableUSD32,000USD1.2260/EUR1Forward Market HedgeHedged ReceivableShort ForwardPut Option HedgeUSD1.2100/EUR1 |
| What is the label for line I? | Choose...S(USD/EUR)90 days-USD32,000USD1.2180/EUR1PremiumUnhedged ReceivableUSD32,000USD1.2260/EUR1Forward Market HedgeHedged ReceivableShort ForwardPut Option HedgeUSD1.2100/EUR1 |
| What is the label for line J? | Choose...S(USD/EUR)90 days-USD32,000USD1.2180/EUR1PremiumUnhedged ReceivableUSD32,000USD1.2260/EUR1Forward Market HedgeHedged ReceivableShort ForwardPut Option HedgeUSD1.2100/EUR1 |
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Report On Trade Conditions In China
Authors: Harry R. Burrill, Raymond F. Crist
1st Edition
1138617806, 9781138617803
