Question
Tektronics is a manufacturer of scientific instruments and is a US based MNC. The company's treasurer, Dr. Robert Grosse,needs to choose an instrument to hedge
Tektronics is a manufacturer of scientific instruments and is a US based MNC. The company's treasurer, Dr. Robert Grosse,needs to choose an instrument to hedge a 1.00 million sale to Siemens, Germany and the payment is due in six months. His bank has given him the following quotes:
Market Rates and Internal Data
Spot Rate
$1.0538/
Six-month forward rate$1.0687/
Six-month euro interest rate 3.1250%
Six-month US dollar interest rate 6.0000%
Tektronics' weighted average cost of capital12.0000%
Premium on Six-monthcalloption on euros at strike price $1.1200/ 1.2000 centsof USD /
Premium on Six-monthputoption on euros at strike price $1.1200/ 6.1000 cents of USD /
He needs your assistance in hedging this transaction exposure. His firm does not permit remaining unhedged.
Calculate the following:
- Forward Market Hedge
- Money Market Hedge at Market Rates
- Money Market Hedge at the firm's weighted avaerage cost of capital (WACC)
- Options Market Hedge
- Which hedging strategy is the best according to yoir calculations?
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