QUESTION Your company ordered an environmental study at a cost of 225 000 USD This amount will be due when the study is delivered in 9 months The current spot rate is 1 30 CAD USD Compare the cost in CAD of this study according to the spot rate in 9 months Without hedging Hedging using a 9 month forward contract at an exchange rate of 1 33 CAD USD With money market hedging The borrowing rate in CAD is 2 8 and the deposit rate is 1 2 The borrowing rate in USD is 3 2 and the deposit rate is 1 9 (Effective rates per 9 months) With option hedging The following options on 100 USD expire in 9 months Premium Call (CAD) 9 715 2 545 Strike Premium Put (CAD USD) (CAD) 1 25 1 68 1 40 9 435

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Question: QUESTION: Your company ordered an environmental study at a cost of 225 000 USD. This amount will be due when the study is delivered in

QUESTION: Your company ordered an environmental study at a cost of 225 000 USD. This amount will be due when the study is delivered in 9 months. The current spot rate is 1.30 CAD/USD. Compare the cost in CAD of this study according to the spot rate in 9 months.

QUESTION: Your company ordered an environmental study at a cost of 225

Without hedging
Hedging using a 9-month forward contract at an exchange rate of 1.33 CAD/USD.
With money market hedging. The borrowing rate in CAD is 2.8% and the deposit rate is 1.2%. The borrowing rate in USD is 3.2% and the deposit rate is 1.9%. (Effective rates per 9 months)
With option hedging. The following options on 100 USD expire in 9 months:

Premium Call (CAD) 9.715 2.545 Strike Premium Put (CAD/USD) |(CAD) 1.25 1.68 1.40 9.435

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