You are the CFO of a medium-sized Norwegian fish-farming company, which has just delivered 100,000 kilos of fresh salmon to Delli Fisheries of London, U.K. Guaranteed payment of £1,000,000 is due in 90 days. You are considering three alternative hedges, these market data apply this morning:

Spot rate NOK 10.2505/£ Forward NOK 10.2627/£

NOK rate 2.15% p.a. GBP rate 1.67% p.a.

Put option at exercise NOK 10.2627/£ Put option premium NOK 0.0500/£

(a) Demonstrate numerically the extent to which your cash receipts in 90 days depending on the hedging technique chosen: Forward market, money market, and options hedge

(b) The currency strategiest with your primary bank tells you that the GBP pound will almost surely appreciate in the coming months. What do you tell him?

Answer rating: 100% (QA)

a Cash Receipt Calculations for Different Hedging Techniques 1 Forward Contract Deliver 1000000 in 90 days Forward rate NOK 102627 Cash receipt in NOK ... View the full answer