Statoil sold 1 million barrels of crude oil to the Norwegian petrol station chain, Circle K,...

Statoil sold 1 million barrels of crude oil to the Norwegian petrol station chain, Circle K, today for 120 Nok per barrel (Nok denotes the Norwegian Krone). Statoil expects to receive the full payments from Circle K in 3 months’ time when the crude oil is delivered to Circle K’s facilities in Norway. Statoil is informed that Circle K will pay for the oil in Norwegian Krone. Ari is asked by the Chief Financial Officer (CFO) about thestrategy to reduce the uncertainty around the expected payment from Circle K. Ari is faced with the following market rates:

Spot exchange Rate	Nok 6.0312/$
3-month forward rate	Nok 6.0186/$
U.S. dollar 3-month interest rate	5%
Norwegian Krone 3-month interest rate	4.45%

Based on the above information, what hedging strategy should Ari advise the CFO that works the best for Statoil? Explain why Ari should choose such hedging strategy. How much U.S. dollar will Statoil receive at the end of 3 months by using this hedging strategy?

Statoil sold 1 million barrels of crude oil to the Norwegian petrol station chain, Circle K, today for 120 Nok per barrel (Nok denotes the Norwegian Krone). Statoil expects to receive the full payments from Circle K in 3 months’ time when the crude oil is delivered to Circle K’s facilities in Norway. Statoil is informed that Circle K will pay for the oil in Norwegian Krone. Ari is asked by the Chief Financial Officer (CFO) about thestrategy to reduce the uncertainty around the expected payment from Circle K. Ari is faced with the following market rates:

Spot exchange Rate	Nok 6.0312/$
3-month forward rate	Nok 6.0186/$
U.S. dollar 3-month interest rate	5%
Norwegian Krone 3-month interest rate	4.45%

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