Currency option or currency swaption
Primetime Systems, Inc. now has total worldwide revenues of over $820 million forecast for this coming year.
You have operations in the United States of $450 million with a 12% ROS (return on sales),
operations in Germany of ?200 million with an a return on sales (ROS) of 11%,
and operations in Shanghai, China, of 990 million yuan with an ROS of 9%.
You expect to repatriate all the ROS to the U.S. when available in 12 months.
1. Determine the spot and 12-month forward exchange rates and determine any change in the ROS repatriated in 12 months based on exchange rates versus the current forecast.
2. Describe the repatriation using a spot transaction, an outright forward, and a foreign-exchange swamp.
3. Would there be any use or benefit in using a currency option or currency swaption?
4. Describe each.
5. How would you advise the company to handle the repatriation?
6. Please cite all references