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Question: ABC is a us company that just bought goods from a French Company for 600 million euros with payment due in 4 months. assume the following:

Spot rate $1.32/Euro

4 month forward rate $1.31/Euro

4 month French interest rate 8% p.a.

4 month US interest rate 6% p.a.

4 month call option on euros at a strike price of $1.29/Euro with a 3% premium

4 month put option on euros at a strike price of $1.35/Euro with a 4 %premium

A. How can ABC hedge this risk?

b. Which alternative would you choose and why?

c. Does the French company have any transaction risk as a result of this deal?

d. what is the breakeven exchange rate between the forward market hedge and your option alternative (the one you used in Part A)?

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M92770337

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