Question: please solve fast Question 4 16 points Save Answer Central Valley Transit Inc. (CVT) has just signed a contract to purchase light rail cars from

please solve fast please solve fast Question 4 16 points Save Answer Central Valley Transit

Question 4 16 points Save Answer Central Valley Transit Inc. (CVT) has just signed a contract to purchase light rail cars from a manufacturer in Germany for euro 3,000,000. The purchase was made in June with payment due six months later in December. Because this is a sizable contract for the firm and because the contract is in euros rather than dollars, CVT is considering several hedging alternatives to reduce the exchange rate risk arising from the sale. To help the firm make a hedging decision you have gathered the following information The spot exchange rate is $1.250/euro The six month forward rate is $1.22/euro CVT's cost of capital is 11% The Euro zone 6-month borrowing rate is 9% The Euro zone 6-month Invesment rate is 7% The U.S. 6-month borrowing rate is 8% The U.S. 6-month Invesment rate is 6% December call options for euro, strike price $1.28/euro, premium price is 1.5% December put options for euro; strike S1 27/euro, premium price is 1.3% CVT's forecast for 6-month spot rates is $1.27/euro a) how can CVT hedge its transaction exposure in the forward market? What is The required amount in dollars to pay off the accounts payable in 6 months will be? 3points) b)Explain how can CVT use the money market to hedge the payable? What is the cost in USD to settle the euro payable? (4 point) c)What is the WACC at which CVT will be indifferent between the forward market and money market hedge? (3 points) d)What is The Maximum future dollar paid to settle the account payable using the option hedge? Make sure to mention the necessary explanation ( 6 points)

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