Calculate the dollar cost of the possible hedges

Reference no: EM1317365

Hedge finance

Suppose we have euro 50,000,000 payable in one year and the one year forward rate is euro 0.74/$. There is also a call available for a premium of $0.15 for a one year expiration at a strike of euro 0.75/ $. The following table provides estimates of the future spot rate under different scenarios. Calculate the dollar cost of the possible hedges and explain which hedge you would use

Scenario	Probability	Expected future spot rate (euro/$)
1	0.30	0.70
2	0.50	0.74
3	0.20	0.77

Reference no: EM1317365

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