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You have delivered 100,000 bushels of Red Wheat # 4 to a customer in Amsterdam at a price of 1.923 Euros per bushel. Under the terms of the agreement you will receive payment in Euros in 90 days. The current $/Euro exchange rate is $1.35 per Euro. Eurobor, the rate at which you can borrow/or lend in Euros is 6%. You can purchase/sell forward contracts for Euros for delivery in 90 days at a price of 1.95 Euro's per dollar.

(a) Structure a hedge for your exposure using forwards. What is the effective $/Euro rate that you lock in?

(b) Structure a synthetic forward that would hedge your exposure. What is the effective $/Euro rate that you lock in?

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Basic Finance, Finance

Category:- Basic Finance
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