tini-Case Help Esprit Cover Up Its Mexican Peso Transaction Exposure Esprit Holdings, the fashion retailer, owes Mex$7 million Questions in 30 days for a recent shipment of clothes from Mexico. Esprit's treasurer is considering hedging the company's 2. What is the hedged cost of Esprit's payable using a peso exposure on this shipment and is looking for some forward market hedge? help in figuring out what her different hedging options 3. What is the hedged cost of Es might cost and which option is preferable. You call up your favorite foreign exchange trader and receive the fol- 4. What is the hedged cost of Esprit's payable using a put lowing interest rate and exchange rate quotes: 1. What hedging options are available to Esprit? money market hedge? option? equal to the cost of the forward market hedge? To the 5. At what exchange rate is the cost of the put option just Spot rate Forward rate (30 days): 30-day put option on euros at Mex$17.66/ 30-day call option on euros at Mex$17.95: Euro 30-day interest rate (annualized): Peso 30-day interest rate (annualized): Mex$17.80/E Mex$17.95/ 1% premium cost of the money market hedge? 6. How can Esprit construct a currency collar? What is the net premium paid for the currency collar? Using this currency collar, what is the net cost of the payable if the spot rate in 30 days is Mex$17.50/e? Mex$17.80/? Mex$18.30/? 3% premium 10% 3.5% 7. What is the preferred alternative? 8. Suppose that Esprit expects the 30-day spot rate to Based on these quotes, the treasurer presents you with a series of questions that she would like you to address. be Mex$18.30/. Should it hedge this payable? What other factors should go into Esprit's hedging decision