In: Finance
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Q. As the CFO, 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 $1.18/€?
b) if the exchange rate will be $1.35/€?
c) if the exchange rate will be $0.95/€?
*The pay off if not hedged is calculated as
Sales * per student cost * The exchange rate as given in the question-
**The payoff from option is calculated as
(Max(option strike price - exchange rate,0) - (option premium*Exhange rate)*sales volume* Per student cost
All the other formulated are clear in the excel itself.
Hope it helps, Please let me know in the comments section in case of any problem