Comparison of Techniques for Hedging Receivables
Assume that one-year put options on singapore dollars are available, with an exercise price of $0.63 and a premium of $0.04 per unit. One-year call options on singapore dollars are available with an exercise price of $0.60 and a premium of $0.03 per unit. Assume the following money market rates:
Given this information, determine whether a forward hedge, a money market hedge, or a currency options hedge would be most appropriate. Then compare the most appropriate hedge to an unhedged strategy, and decide whether Carbondale should hedge its receivables position.
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