Bios is a company in London that manufactures paper products and trades with some customers based...
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Bios is a company in London that manufactures paper products and trades with some customers based in Italy and Norway. These are some information of the trade deals that Bios have over the short term: Transactions Net payment to Italy in 2 months time is Euro 393,265 Net receipt from Norway in 3 months time is Kr8.6m Foreign exchange rates Spot Kr/GBP 10.68 - 10.71 Euro/GBP 1.44 -1.47 Two months forward 10.74 - 10.77 1.43 1.46 Three months forward 10.78 -10.83 1.43 - 1.46 Interest rates for 2 or 3 months Borrowing % p.a Deposit % p.a Eurozone UK Norway 5.75 3.50 7.50 5.50 8.00 6.00 Bios has a 2-month call option on Euro at an exercise price of 1.42 Euro/GBP with 1% premium and a 3-month put option on Norwegian Krone at an exercise price of 10.63 Kr/GBP with a 2.5% premium. (a) Calculate the net sterling (GBP) payment and receipt which Bio might expect for both its 2 and 3 months hedging using the techniques below: (i) Forward hedge (ii) Money market hedge (iii) Option hedge (not necessary to compound premium) (iv) Evaluate which is the best hedging technique for Bios for the 2 and 3 months hedging. Bios is a company in London that manufactures paper products and trades with some customers based in Italy and Norway. These are some information of the trade deals that Bios have over the short term: Transactions Net payment to Italy in 2 months time is Euro 393,265 Net receipt from Norway in 3 months time is Kr8.6m Foreign exchange rates Spot Kr/GBP 10.68 - 10.71 Euro/GBP 1.44 -1.47 Two months forward 10.74 - 10.77 1.43 1.46 Three months forward 10.78 -10.83 1.43 - 1.46 Interest rates for 2 or 3 months Borrowing % p.a Deposit % p.a Eurozone UK Norway 5.75 3.50 7.50 5.50 8.00 6.00 Bios has a 2-month call option on Euro at an exercise price of 1.42 Euro/GBP with 1% premium and a 3-month put option on Norwegian Krone at an exercise price of 10.63 Kr/GBP with a 2.5% premium. (a) Calculate the net sterling (GBP) payment and receipt which Bio might expect for both its 2 and 3 months hedging using the techniques below: (i) Forward hedge (ii) Money market hedge (iii) Option hedge (not necessary to compound premium) (iv) Evaluate which is the best hedging technique for Bios for the 2 and 3 months hedging.
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Answer Lets calculate the net sterling GBP payment and receipt for Bios using each of the hedging techniques mentioned i Forward Hedge For a forward h... View the full answer
Related Book For
International Marketing And Export Management
ISBN: 9781292016924
8th Edition
Authors: Gerald Albaum , Alexander Josiassen , Edwin Duerr
Posted Date:
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