B Ltd a US firm had exports to C Ltd a UK firm in year 2016 for 10M payable in 1 year. The interest and exchange rates applicable were as follows:

US interest rates 6.1%

UK interest rates 9.0%

Spot exchange rate $1.50/

Forward exchange rate $1.46/

The future spot rates were likely to be as follows: $1.30, $1.40, $1.46, $1.50 and $1.60

B Ltd purchased a put option on the 10M with a strike price of $1.46 with a 1 year expiry date and whose premium was $0.02 per

Required: advice on the best hedging technique for B Ltd

Answer rating: 100% (QA)

Based on the given information B Ltd is a US firm that had exports to C Ltd a UK firm in 2016 for 10 ... View the full answer