Tektronics is a manufacturer of scientific instruments and is a US based MNC. The company's treasurer, Dr.
Question:
Tektronics is a manufacturer of scientific instruments and is a US based MNC. The company's treasurer, Dr. Robert Grosse, needs to choose an instrument to hedge a €10.00 million sale to Siemens, Germany and the payment is due in six months. His bank has given him the following quotes:
Market Rates and Internal Data
Spot Rate : $1.0538/€
Six-month forward rate : $1.0687/€
Six-month euro interest rate 3.1250%
Six-month US dollar interest rate : 6.0000%
Tektronics' weighted average cost of capital 12.0000%
Premium on Six month call option on euros at strike price $1.1200/€ :1.2000 cents of USD / €
Premium on Six month put option on euros at strike price $1.1200/€ :6.1000 cents of USD / €
He needs your assistance in hedging this transaction exposure. His firm does not permit remaining unhedged.
Calculate the following:
a. Forward Market Hedge
b. Money Market Hedge at Market Rates
c. Money Market Hedge at the firm's weighted average cost of capital (WACC)
d. Options Market Hedge
Which hedging strategy is the best according to your calculations?Cost Accounting A Managerial Emphasis
ISBN: 978-0132109178
14th Edition
Authors: Charles T. Horngren, Srikant M.Dater, George Foster, Madhav