Reference no: EM133057183

Texeco PLC is a US based MNC that will need € 100,000 in one year. It could obtain a forward contract to purchase the euros in one year. The one year forward rate is $1.20, the same rate as currency futures contract on euros. You also learn that the Euro deposit rate is 5% p.a and can also borrow US$ at 8% p.a The spot today is $/€1.18. The company's international treasurer is also wary that the forward and money market techniques can backfire when a payables currency depreciates or a receivables currency appreciate over the hedged period. The treasurer is therefore open to the use of a currency call option that has an exercise price of $1.20, a premium of $0.03 and an expiration date of one year from now Texedo's forecast for the spot rate of the € at the time payables are due is as follows:

Scenario Due date spot Premium probability

One $1.16 $0.03 20%
Two 1.22 0.03 70%
Three 1.24 0.03 10%

Required You are required to calculate the respective costs for each of the following hedging technics and advise Texeco's international Treasurer accordingly.

-Forward contract
- Money market
- Call option
-4 A no hedge situation.