Questions

1. Why is Cairns concerned by the current exchange rate fluctuation? Is the position short or long?
2. If Cairns decides to use options would she use puts or call?
3. Calculate the impact of the two hedging strategies and the unhedged position under the following three scenario at the end of January:

• a) USD=CAD
• b) USD= 0,90 CAD
• c) USD= 1,10 CAD

4 . Should Cairns hedge her position in USD? Why and why not? If you think she should hedge, which vehicle would she use?

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