c. . Assume that Fresco Corp. a U.K. exporter to New Zealand will receive NZ$ 8,50000 in
Question:
c. . Assume that Fresco Corp. a U.K. exporter to New Zealand will receive NZ$ 8,50000 in 90 days. It considers using, a forward hedge, a money market hedge and option hedge. Its analyst develops the following information, which techniques will be the best for this corp.?
90-day U.K. interest rate .................... .... 3.5%
90-day New Zealand interest rate ...............4.2%
Spot rate of pound ............... NZ$1.47
Forward rate of pound............ NZ$ 1.48
90-day call option: exercise price NZ$ 1.48 and premium NZ$0.03
90-day put option: exercise price NZ$ 1.49 and premium NZ$ 0.02
Fresno Corp. forecasts the future spot rate in 90 days are as follows:
Spot rate---------------- Probability
NZ$ 1.43 ------------------- 25%
NZ$ 1.46 --------------------------65%
NZ$ 1.52 --------------------------10%