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surt pesithe Larkin Hydraulics. On May 1, Larkin Hydraulics, a wholy owned subsidiary of Caterpiltar (U S.) sold a 12-megawatt compression turbine to Rebecke-Terwilleger Company of the Netherlands for 64,400,000, payable as 2,200,000 on August 1 and 62,200,000 on November 1 Larkin derived its price quote of E4,400,000 on Apnil 1 by dividing its normal US dollar sales price of $4,620,000 by the then current spot rate of $1,05001 By the Uime the order was received and booked on May 1 , the eure had strengthened to $10800/, 50 the sale was in fact worth 64,400,000$1,0800/E=$4,752,000 Latkin had already gained an extra $132,000 from favorable exchange rate movements Nevortheless, Latkin's director of finance now wondered it the firm should hodge against a reversal of the recent trend of tho euto Four approachos were possible a. Hodge in the forward market The 3 -month forward exchange quote was $1.06001E and the 6 -month forward quote was $1.0940m - b. Hedge in the money market Larkin could borrow euros from the Frankfurt branch of its US bank at 924% per annum c. Hedge with foregn curency options. August put options were available at strike prico of $1 obco. for a promium of 20 os per contract and November put optons were avalable at $1.0800 e for a premmum of 1:4%. August call options at $10800/t could bo purchased for a premium of 3 .0\%, and November call options at S1. 0800ie were available at a 28% premitam d. Do nothing Larkin could wat unti the-sales proceeds were recerved in August and November, hope the rocent strengthening of the eure would continue, and sell the euros receved for dollars in the spot markot Larkin estimates the dust of equity capital to be 13% per annum As a small firm. Larkin Hydraulcs is unable to rase funds withi long teem debt U. 5 . T-bills yield 35% per annum What should Larkin do? surt pesithe Larkin Hydraulics. On May 1, Larkin Hydraulics, a wholy owned subsidiary of Caterpiltar (U S.) sold a 12-megawatt compression turbine to Rebecke-Terwilleger Company of the Netherlands for 64,400,000, payable as 2,200,000 on August 1 and 62,200,000 on November 1 Larkin derived its price quote of E4,400,000 on Apnil 1 by dividing its normal US dollar sales price of $4,620,000 by the then current spot rate of $1,05001 By the Uime the order was received and booked on May 1 , the eure had strengthened to $10800/, 50 the sale was in fact worth 64,400,000$1,0800/E=$4,752,000 Latkin had already gained an extra $132,000 from favorable exchange rate movements Nevortheless, Latkin's director of finance now wondered it the firm should hodge against a reversal of the recent trend of tho euto Four approachos were possible a. Hodge in the forward market The 3 -month forward exchange quote was $1.06001E and the 6 -month forward quote was $1.0940m - b. Hedge in the money market Larkin could borrow euros from the Frankfurt branch of its US bank at 924% per annum c. Hedge with foregn curency options. August put options were available at strike prico of $1 obco. for a promium of 20 os per contract and November put optons were avalable at $1.0800 e for a premmum of 1:4%. August call options at $10800/t could bo purchased for a premium of 3 .0\%, and November call options at S1. 0800ie were available at a 28% premitam d. Do nothing Larkin could wat unti the-sales proceeds were recerved in August and November, hope the rocent strengthening of the eure would continue, and sell the euros receved for dollars in the spot markot Larkin estimates the dust of equity capital to be 13% per annum As a small firm. Larkin Hydraulcs is unable to rase funds withi long teem debt U. 5 . T-bills yield 35% per annum What should Larkin do