PT Gas Co is a large multinational company in the UK with a number of subsidiary companies around the world. One of the subsidiary is Laxamana Co which is based in US. PT Gas Co is owing to Laxamana Co amounted to US$2.4 million. PT Gas Co want to hedge against the USD strengthening against the £ because if the £ depreciates against the USD, then the PT Gas Co has to spend more £ to buy the USD later at the end of 3 months. Other information available are: 1. Current exchange rate (US$/£1): Spot 5962 3-month futures 1.6037 2. Contract size £62,500 3. In 90 days’ time the spot is 1.6213 $/£ 4. Assume that the basis is zero at the maturity of the futures contract Advise PT Gas Co the hedging strategies for the US$ cash flow that is due to pay in three months to Laxamana Co using currency futures. Show all the relevant calculations.

PT Gas Co is a large multinational company in the UK with a number of subsidiary companies around the world. One of the subsidiary is Laxamana Co which is based in US. PT Gas Co is owing to Laxamana Co amounted to US$2.4 million. PT Gas Co want to hedge against the USD strengthening against the £ because if the £ depreciates against the USD, then the PT Gas Co has to spend more £ to buy the USD later at the end of 3 months. Other information available are: 1. Current exchange rate (US$/£1): Spot 5962 3-month futures 1.6037 2. Contract size £62,500 3. In 90 days’ time the spot is 1.6213 $/£ 4. Assume that the basis is zero at the maturity of the futures contract Advise PT Gas Co the hedging strategies for the US$ cash flow that is due to pay in three months to Laxamana Co using currency futures. Show all the relevant calculations.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter14: Multinational Capital Budgeting

Section: Chapter Questions

Problem 5ST

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