What is the best possible hedging strategy

Assignment Help Finance Basics
Reference no: EM131950967

Tesla Inc. is expecting to receive 100,000 euro in one year. Tesla expects the spot rate of euro to be $1.49 in a year, so it decides to avoid exchange rate risk by hedging its receivables. The spot rate of the pound is quoted at $1.51. The strike price of put and call options are $1.54 and $1.53 respectively. The premium on both options is $.03. The one-year forward rate exhibits a 2.65% premium. What is the best possible hedging strategy and how many U.S. dollars Tesla will receive under this strategy?

Reference no: EM131950967

Questions Cloud

What would be the consequences if libor raises : Why would LIBOR rise? What would be the consequences if LIBOR raises? As an investor, how should you be looking at LIBOR? Do you want LIBOR to go up
Can the option be exercised and the holder makes a loss : Under what circumstances will the option be exercised? Can the option be exercised and the holder makes a loss?
Discuss the type of unemployment : Technological unemployment is a term used to describe the lack or loss of jobs due to technological changes or innovations.
What should al-araby do to avoid foreign exchange risk : What should Al-Araby do to avoid foreign exchange risk? What is the profit or loss from this transaction in US dollars?
What is the best possible hedging strategy : What is the best possible hedging strategy and how many U.S. dollars Tesla will receive under this strategy?
How would you keep the stakeholders happy : How would you propose obtaining the funds needed to keep the company alive and thriving for the next 2 years until you are able to see a return
Explore the impact of globalization on us businesses : Think about what you have read and seen in the news on globalization. Prepare a 4-6 page paper that describes the impact of globalization on U.S. businesses.
What is your personal reaction to the ideas in the reading : What is your personal reaction to the ideas in the reading? You may wish to address, for example, questions the reading raises for you, objections you have.
What effective annual interest rate : What effective annual interest rate does the firm earn when a customer does not take the discount?

Reviews

Write a Review

Finance Basics Questions & Answers

  What is the yield to maturity of bond

1. A Japanese company has a bond outstanding that sells for 94 percent of its ¥100,000 par value. The bond has a coupon rate of 6.1 percent paid annually and matures in 17 years. What is the yield to maturity of this bond?

  Junk bonds

Junk bonds are a. issued by firms with a low debt ratio b. usually rated Ba or higher

  What is the percentage up movement

Use a two-step tree to value a six-month European call option and a six-month European put option. In both cases the strike price is $150.

  In january ron a firefighter was injured in the line of

in january ron a firefighter was injured in the line of duty as a result of interference by a homeowner. he incurred

  What is the initial outlay associated with project

What is the initial outlay associated with this project? What are the operating cash flows associated with this project?

  What is the firm cost of preferred stock financing

Nature Food Inc. needs to estimate the cost of financing on preferred stock. The firm has preferred stock outstanding that pays a constant dividend of $4.06.

  Which of the following would cause average inventory

directions answer the following five questions on a separate document. explain how you reached the answer or show your

  Structure of interest rates for risk-free

Suppose the term structure of interest rates for risk-free zero-coupon bonds is as follows:

  Calculate the firms new long term debt

Assume that net capital spending was zero, no new investments were made in net working capital, and no new stock was issued during the year. Calculate the firms new long term debt added during the year.

  What is the productivity for each option

If he buys from Company B, they would charge him $6.00 per return, and the preparation would take 13 minutes less.

  Increase the informativeness of the prospecting

The firm now has the option of investing $20 million in developing a new seismic test which will increase the informativeness of the prospecting.

  What is the relevance of the swap rate curve

Suppose that the one-year spot rate is 4.1% and the two-year spot rate is 4.6%. What is the one-year forward rate one year from now?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd