Question
In: Finance
Assume that a US based firm, Florida Inc. expects to pay CAD 900,000 in one year....
Assume that a US based firm, Florida Inc. expects to pay CAD 900,000 in one year. The existing spot rate is 1 CAD = 0.76 USD. The one year forward rate of the CAD is USD 0.79. Florida created a probability distribution for the future spot rate of CAD in one year as follows:
Future Spot Rate Probability
USD 0.75 20%
USD 0.78 50%
USD 0.81 30%
Assume one year put options on CAD with an exercise price of USD 0.81 and a premium of USD 0.03 per unit. One year call options on CAD are available with an exercise price of USD 0.77 and a premium of USD 0.02 per unit. Assume the following money market rates:
USA Canada
Deposit rate 5% 3%
Borrowing rate 6% 4%
Given the above information, what is the best hedging strategy for Florida?
| A. |
Forward hedge |
|
| B. |
Option hedge |
|
| C. |
Money market hedge |
|
| D. |
No hedge |
Solutions
jeff jeffy answered 1 year agoRelated Solutions
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