The Thailand Plettery Steel Company has a debt of NZD 100,000, which is repayable in twelve months.

Question:

The Thailand Plettery Steel Company has a debt of NZD 100,000, which is repayable in twelve months. Plettery's controller Jane Due is having trouble sleeping at night knowing that the debt is unhedged. The current THB/NZD is 20, and p.a. interest rates are 21 percent on THB and 10 percent on NZD. Jane is considering a forward hedge (at Ft,T = 20 × 1.21/1.10 = 22), but a friend tells her that he recently bought a call on NZD 100,000 with X = 20, and is willing to sell it to her at the historic cost, THB 1 per NZD or THB 100,000 for the total contract. What should she do?
Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...