Dixon Group, a UK company, whose business operation has been severely affected by the pandemic. The finance

Fantastic news! We've Found the answer you've been seeking!

Question:

Dixon Group, a UK company, whose business operation has been severely affected by the pandemic. The finance director of Dixon is concerned with the contraction of the company's profits. Suppose now is 1 December. In the recent deals, parts have been bought from Italy with the amount of €6,000,000 is due payable in three months. Finished goods have recently been sold to Australia and the United State. A deal exporting to the United State amounting to USD10,000,000 is due receivable in six months. Another deal to Australia amounting to AUD5,000,000 is on cash.

The mid-market rates as of 1 December are as follow: Spot market to 1 AUD to 1 USD to 1 1.1625 1.8217 1.4205 Current annual interest rates Investing 4% 6% 10% 12% UK Europe Australia USA Borrowing 8% 10% 14% 16% Required:
(a) Identify the amount of foreign currency exposures of Dixon group. Assess the choices of hedging strategies available to the company to protect the short-term foreign exchange exposures. Recommend with supporting calculations.
• Forward
• Futures
Options
Money market
(b) List and explain four (4) factors that affect the price of a Euro dollar options contract.