Finance

B. Case PT Gas Co is a large multinational company in the UK with a number of subsidiary companies around the world. One of the subsidiary is Laxamana Co which is based in US. PT Gas Co is owing to Laxamana Co amounted to US$2.4 million. PT Gas Co want to hedge against the USD strengthening against the f. because if the f depreciates against the USD, then the PT Gas Co has to spend more f to buy the USD later at the end of 3 months. Other information available are: 1. Current exchange rate (US$/E1): Spot 1.5962 3-month futures 1.6037 2. Currency Options: Exercise price Call options (3-month expiry) Put options (3-month expiry) 1.60 1.55 2.08 1.62 0.98 3.42 3. Contract size $62,500, Exercise price quotation: US$/E1, Premium: cents per $1 4. In 90 days' time the spot is 1.6213 $/E 5. Assume that the basis is zero at the maturity of the futures contract (ACCA) Required: Advise PT Gas Co the appropriate hedging strategies for the US$ cash flow that is due to pay in three months to Laxamana Co using currency futures and currency options. Show all the relevant calculations. (15 marks)