•Current exchange rate is $1.16/€. •Forward rate is $1.185/€. •Expected final sales volume is 30,000. Worst case scenario is volume of 10,000. Best case scenario is volume of 36,000. •Cost per student...
•Current exchange rate is $1.16/€.
•Forward rate is $1.185/€.
•Expected final sales volume is 30,000. Worst case scenario is volume of 10,000. Best case scenario is volume of 36,000.
•Cost per student is €2500.
•Option premium is 2% of USD strike price.
•Option strike price is $1.165/€.
Question: You decided to hedge using option contracts. Assuming expected final sales volume is 30,000, what are your total benefit/cost and the percentage benefit/cost from hedging (compared to no hedging)
a) if the exchange rate remains at $1.16/€?
b) if the exchange rate will be $1.25/€?
c) if the exchange rate will be $1.08/€?
Homework Answers
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•Current exchange rate is $1.16/€. •Forward rate is $1.185/€. •Expected final sales volume is 30,000. Worst case scenario is volume of 10,000. Best case scenario is volume of 36,000. •Cost per student...
Assume you are the CFO of AIFS. Your analyst reports the following information (Use the following...
Assume you are the CFO of AIFS. Your analyst reports the following information (Use the following information for the remainder of the assignment): Current exchange rate is $1.16/€. Forward rate is $1.185/€. Expected final sales volume is 30,000. Worst case scenario is volume of 10,000. Best case scenario is volume of 36,000. Cost per student is €2500. Option premium is 2% of USD strike price. Option strike price is $1.165/€. 4. Using the above information a) What is the total...
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