A. We have 100 million South African rand that is payable in one year (we have to
Question:
A. We have 100 million South African rand that is payable in one year (we have to pay it to a South African company.) Assume the spot exchange rate is 10.05 rand equal one US dollar. Also, assume that the forward exchange rate is 10 rand equal one dollar. We expect the future spot rate to be 9.8 rand per $1. Furthermore, either calls or puts cost .01(1%). The exercise price of the options is 10 rand per dollar and 11 rand per dollar for both types of options.
Expound on how to hedge the aforementioned exposure. Moreover, the market expectation is that the rand will appreciate against the dollar. We want to implement transaction exposure hedging.
Ascertain that we use 1) a forward contract, or an options approach.
B. We have the same information as above. In this case, we want to hedge via risk-sharing, or leading and lagging or currency swaps.
Advanced Accounting
ISBN: 978-0077431808
10th edition
Authors: Joe Hoyle, Thomas Schaefer, Timothy Doupnik