What is the dollar cost of using a forward hedge

Assignment Help Accounting Basics

Reference no: EM132972627

Question: Gaggle is a U.S. based firm with operations across Europe. The firm expects to pay €20mil in 90 days. As the head of the risk management department, you need to hedge against the € exposure. The European prevailing interest rate is 2% p.a., while that of the U.S. is 3% p.a.. The current spot rate of the € is $1.2. The 90-day forward price is $1.15/€. The 90-day European call option on the $ with the exercise price of €0.85 is selling at 3% premium. The 90-day European put option on the $ with the exercise price of €0.87 is selling at 2% premium.

A) What is the dollar cost of using a forward hedge? Make sure you state your position in the forward contract.

B) What is the cost if you decided to use money markets to hedge against the $XX of payable in 90 days?

C) What is the cost of an option hedge at the time the payment is due assuming you exercise the option when the payment is due.

D) Based on the answers in (a), (b), and (c), which hedging methods should your firm choose?

Reference no: EM132972627

Questions Cloud

Should deloitte have evaluated the sales occurring : Should Deloitte have evaluated the sales occurring after the balance sheet date of May 31, 1984? Should the oversale of lifetime partnerships be classified?

Develop a forward-looking strategy or plan to ensure : Discuss the correlation between ethical standards and making the right decisions, and finally, develop a forward-looking strategy or plan to ensure these issue

Compute the tax for the al salary remuneration : Compute the tax for the $10,000 in salary and the remainder in dividends and All dividends and All salary remuneration alternatives

Explain digital marketing or direct marketing : 1. Businesses are increasingly using "influencers" for advertising on social media. Do you think it is better or worse than traditional advertising and why (exp

What is the dollar cost of using a forward hedge : What is the dollar cost of using a forward hedge? Make sure you state your position in the forward contract.

Book value of the assets sold per instalment amounted to? : In the book value of the assets sold per instalment amounted to - capital interest of Kahel amounted to? loss absorption capacity of Kahel amounted to

Eligibility and ineligibility requirements : List a minimum of EIGHT (8) eligibility and ineligibility requirements to work as a Licensed Estate Agent in Victoria. Include the educational requirements.

Compute incentive pay calculation : What is a good math equation to compute incentive pay calculation? base wage is 34000 with a 1% pay increase, new salary=34340.

Can national policies that seek to promote the wellbeing : Can national policies that seek to promote the wellbeing of its citizens by its attempts to maintain competition actually have the opposite effect?

User Account

All Pages