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Calculate the alternative ways that dole can hedge

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Reference no: EM132979977

Question - The Dole Company (USA) has just purchased a German food distributor for Euro 6,000,000. Payment is due in six months. The following quotes are current in the market.

Six-month interest rate for borrowing or investing U.S. dollars: 10% per year

Six-month interest rate for borrowing or investing Euro: 8% per year

Spot exchange rate: Euro1.2000/$

Six-month forward exchange rate: Euro1.2200/$

Six-month call option on Euro 6,000,000 at an exercise price of Euro1.2000/$, premium of 1%

a. Calculate the alternative ways that Dole can hedge the foreign exchange transaction exposure.

b. At what spot rate in six months, option is better than forward hedge? Explain.

Reference no: EM132979977

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