Question
You are trying to decide how to hedge euro 5,000,000 accounts receivable due in one year. Current interest rates and exchange rates are: Spot rate:
You are trying to decide how to hedge euro 5,000,000 accounts receivable due in one year. Current interest rates and exchange rates are:
Spot rate: $1.25/ euro
1-year forward rate: $1.18/ euro
1-year interest rates:
interest rate: 2.20% per annum
$ interest rate: 2.00% per annum
Call option: $1.20 strike, premium $0.025/
Put option: $1.20 strike, premium $0.0125/
If you are unhedged, what is your A/R payment in USD given different future spot rates? Complete the table below. In general, what is the accounts receivable in dollars if unhedged.
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