Reference no: EM132971028

Question - Lusty Lite is a beer Factory that produces flavored low calorie beer, with no competitors. In mid March Lusty Lite receives an order for 20,000 cases of beer, to be sent to Munich, Germany, for the Oktoberfest celebration. Payment for the €480,000 will be made in mid September, before (fortunately) that the beer is consumed. In your opinion the Euro will increase its value from an actual spot rate of €1.0500/US$ to an expected spot rate of €0.9820/US$ in mid September. Six month forward rates are €1.0000/US$. Six month call and put options are quoted at a strike price of €0.9550/US$ with a premium of €0.0475/US$ and contract size of €40,000. You can lend or take loans for six months in the United States at an annual rate of 9%, and at a 3% annual rate in Europe. Give an advice to Lusty Lite in terms of her best hedging alternative. Consider all possible options (do nothing, use a forward hedge, an option hedge or a financial hedge).