AUS company has land in Sydney that will likely be sold in the next year. There are two possible states of the world. With a probablity B0% the exchange rate will be $1.4000 / AS. In this case the land will be worth A$4,000,000. With a probability 20% the exchange rate will be $1.5260 / AS and the land will be worth A$3,600,000. How would you use financial hedging to hedge this exposure Sell AS827.556 forward Buy AS844,444 forward Sell AS3.600.000 forward Buy AS4.000.000 forward None of the alternatives

Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter27: Multinational Financial Management
Section: Chapter Questions
Problem 14P
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A US company has land in Sydney that will likely be sold in the next year. There are two possible states of the world. With a probablity
BO% the exchange rate will be $1.4000 / AS. In this case the land will be worth A$4,000.000. With a probability 20% the exchange rate
will be $1.5260 / AS and the land will be worth A$3.600,000. How would you use financial hedging to hedge this exposure
Sell AS827.556 forward
Buy AS844,444 forward
Sell AS3.600.000 forward
Buy AS4.000.000 forward
None of the alternatives
Transcribed Image Text:A US company has land in Sydney that will likely be sold in the next year. There are two possible states of the world. With a probablity BO% the exchange rate will be $1.4000 / AS. In this case the land will be worth A$4,000.000. With a probability 20% the exchange rate will be $1.5260 / AS and the land will be worth A$3.600,000. How would you use financial hedging to hedge this exposure Sell AS827.556 forward Buy AS844,444 forward Sell AS3.600.000 forward Buy AS4.000.000 forward None of the alternatives
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