You are the Finance Director of a UK Business and you need to finance the purchase of
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Question:
You are the Finance Director of a UK Business and you need to finance the purchase of a newmolding machine, in three months time, at a price of $You have decided to hedge the exchange rate risk by buying a three month sterling call optiongiving you the right, but not the obligation, to deliver American dollars, in exchange for pounds,at a price of $ when the machine is delivered in three months time.Three months later the American dollars are delivered on the due date and you have to decidewhether or not to exercise the right to exchange the American dollars for pound sterling at$Scenario The dollar has strengthened against the pound to $Scenario The dollar has weakened against the pound to $Required:For each of the two scenarios above determine the best course of action for you as theFinance Director. Give reasons for your answer. marksb Briefly describe three types of risk that operate in the international marketplace. marks
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