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In: Finance

Your U.S. based company has purchased equipment from a German manufacturer worth €10,000,000 that is payable...

Your U.S. based company has purchased equipment from a German manufacturer worth €10,000,000 that is payable in one year. The current spot rate S(EUR/USD) is $1.13 and the F12(EUR/USD) is $1.1037. The US interest rate is 5 percent and the German interest rate is 7.5 percent. Additionally, a call to buy euros at a strike price $1.11 in 12 months has a premium of $0.0007 per euro and a put at the same strike price have a premium of $0.003. Show the actions you would take and the net cost of the purchase in USD at the time the obligation is due using:

a) the forward market

b) a money market hedge

c) an options contract if the S12 (EUR/USD) is $1.19

d) an options contract if the S12 (EUR/USD) is $1.09.

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Expert Solution

I hope my efforts will be fruitful to you

jeff jeffy answered 1 year ago
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