$0.68 $0.73 $0.78 Assume that 6-month put options on New Zealand dollars are available with an exercise price of $0.73 and a premium of $0.04 per unit. 6-month call options on New Zealand dollars are available with an exercise price of $0.70 and a premium of $0.03 per unit. Assume the following money market rates per annum: 28% 46% 26% US 7% NEW ZEALAND 2% 3% Deposit rate 8% Borrowing rate a. Determine whether a forward hedge, a money market hedge, or a currency options hedge would be the most appropriate. b. Compare the most appropriate hedge to an unhedged strategy and decide whether Promina Group should hedge its position.
$0.68 $0.73 $0.78 Assume that 6-month put options on New Zealand dollars are available with an exercise price of $0.73 and a premium of $0.04 per unit. 6-month call options on New Zealand dollars are available with an exercise price of $0.70 and a premium of $0.03 per unit. Assume the following money market rates per annum: 28% 46% 26% US 7% NEW ZEALAND 2% 3% Deposit rate 8% Borrowing rate a. Determine whether a forward hedge, a money market hedge, or a currency options hedge would be the most appropriate. b. Compare the most appropriate hedge to an unhedged strategy and decide whether Promina Group should hedge its position.
Chapter11: Managing Transaction Exposure
Section: Chapter Questions
Problem 32QA
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