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Question: ADG has a €3,000,000 receivable in 214 days on September 15th. To assess alternative ways of hedging, the following data are relevant: The current spot exchange rate (S)=$1.3088/€, 7-month forward exchange rate (F)=$1.3090, the dollar interest rate (bid)=0.78% and euro interest rate (ask)=1.40%; the put option on the euro with the strike (exercise) price of $1.31 selling for a premium of 5.09 cents per euro. Here we consider and compare three alternative hedging methods as in our discussions in the textbook: Forward, money market, and option hedges. Hedging with futures is often inconvenient due to the standardized maturities and contract size and also possibly thin trading.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M92761734

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