The CFO of an European exporter is facing a dilemma: he has some risks on the 1 year EUR / USD spot evolution (risk on the upside of the EUR / USD) but is not sure that he wants to hedge his position.

The following info are available:

EUR / USD spot = 1.2500

EUR / USD forward = 1,2650

Premium of Call EUR / USD 1Y Strike 1,2600 = 0.0325

Premium of Put EUR / USD 1Y Strike 1,2600 = 0.0375

c)If the CFO thinks that the EUR / USD should go a little bit higher but not more than 0,5%, what is the best solution for his risk exposure?

d)If the CFO thinks that the EUR / USD should go a little bit lower but not more than 0,5%, what is the best solution for his risk exposure?

e)If the CFO thinks that the EUR / USD should go a little much higher what is the best solution for his risk exposure?

f)If the CFO thinks that the EUR / USD should go a much lower, what is the best solution for his risk exposure?

g)What anticipation for the future evolution of the EUR / USD would prompt the CFO to hedge with options?

h)One the CFO interns thinks that hedging the exposure can be done either by buying or selling options? Is it true?

Answer rating: 100% (QA)

Solutions for the CFOs Risk Exposure cf Current Situation EURUSD Spot Rate 12500 EURUSD 1Y Forward Rate 12650 suggests a slight premium for USD Call O... View the full answer