DONT ANSWER THE QUESTION AS MY TEST IS OVER

SO I COULD REFUND THE QUESTION

Ring Me, a US mobile phone importer ordered 30,000 units of the latest Xiaomis smart phone, Note 10 Pro from Xiaomi Technology (China) Ltd. to be introduced to the US market.

Each Note 10 Pro costs CNY3,000. Xiaomi allows a 90-day credit to Ring Me to make the payments. Three alternative hedging methods have been considered; a forward market hedge, money market hedge and option hedge.

Given that 90-day call options on CNY has an exercise price of CNY6.0550 and a premium of $30,000, while the 90-day put options on CNY has an exercise price CNY6.0590 and a premium of $50,000.

The spot rate on the settlement date is estimated at CNY/$ 6.0620 6.0625. Assume there are 360 days in one year.

The following information is available to Ring Me.

Current rates in the foreign exchange (FOREX) markets are as follows:

Spot rate (CNY/$) 6.0633 6.0683

90-day forward 26 15

Current rates in money markets are as follows:

China (% p.a.) 5.50 6.30

US (% p.a.) 8.00 8.60

Required:

Evaluate the most favourable hedging alternative for Ring Me to reduce the foreign exchange risk. (20 marks)