What is the best possible hedging strategy

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Reference no: EM131959698

JCrew Co. is expecting to receive 550,000 euros in one year. JCrew expects the spot rate of euro to be $0.65 in a year, so it decides to avoid exchange rate risk by hedging its receivables.

The spot rate of the euro is quoted at $0.71. The strike price of put and call options are $0.69 and $0.66 respectively.

The premium on both options is $.03. The one-year forward rate exhibits a 2.65% premium.

Assume there are no transaction costs. What is the best possible hedging strategy and how many U.S. dollars JCrew Co. will receive under this strategy.

Reference no: EM131959698

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