Comparison of Hedging Techniques Today the spot rate of the euro is $1.20 and the oneyear for ward rate is $1.16. A one-year call option on euros exists with a premium of $0.04 per unit and an exercise price of $1.17. You think the spot rate is the best forecast of future spot rates. You will need to pay 10 million euros in one year. Determine whether a money market hedge or a call option hedge would be more appropriate to hedge your payables.

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 11, Problem 56QA
Textbook Problem

Comparison of Hedging Techniques Today the spot rate of the euro is $1.20 and the oneyear for ward rate is $1.16. A one-year call option on euros exists with a premium of $0.04 per unit and an exercise price of $1.17. You think the spot rate is the best forecast of future spot rates. You will need to pay 10 million euros in one year. Determine whether a money market hedge or a call option hedge would be more appropriate to hedge your payables.

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