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Cash-flow cost of hedging translation exposure

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Reference no: EM133253190

1. What is the cash-flow cost of hedging translation exposure with forward contracts:

  1. The interest rate differential between the foreign subsidiary and the parent's currencies.
  2. The forward premium/discount on the currency in which the exposure is measured
  3. The unknown (at times of hedging) percentage of the actual foreign currency depreciation/appreciation.
  4. The unknown (at times of hedging) speculative gain/loss resulting from settling the forward contract

2. What is the cash-flow cost of hedging translation exposure with a currency option:

  1. The unknown (at times of hedging) percentage of the actual foreign currency depreciation/appreciation.
  2. The unknown  (at times of hedging) speculative gain/loss resulting from exercising the option + option premium
  3. The interest rate differential between the foreign subsidiary and the parent's currencies.
  4. The option premium on the currency in which the exposure is measured

Reference no: EM133253190

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