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Tektronics is a manufacturer of scientific instruments and is a US based MNC. The company's treasurer, Dr. Robert Grosse, needs to choose an instrument to hedge a €1.00 million sale to Siemens, Germany and the payment is due in six months. His bank has given him the following quotes:

Market Rates and Internal Data

Spot Rate

$1.0538/€

Six-month forward rate$1.0687/€

Six-month euro interest rate 3.1250%

Six-month US dollar interest rate 6.0000%

Tektronics' weighted average cost of capital12.0000%

Premium on Six-month call option on euros at strike price $1.1200/ €1.2000 cents of USD / €

Premium on Six-month put option on euros at strike price $1.1200/ €6.1000 cents of USD / €

He needs your assistance in hedging this transaction exposure. His firm does not permit remaining unhedged.

Calculate the following:

  1. Forward Market Hedge
  2. Money Market Hedge at Market Rates
  3. Money Market Hedge at the firm's weighted avaerage cost of capital (WACC)
  4. Options Market Hedge
  5. Which hedging strategy is the best according to yoir calculations?

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