Question: The company hedges using a forward contract 1815 Gallons * BRL 90.15 = 163,622 Exchange Rate = 0.4227 Convert to USD = $69,163.02 Interest Rate

The company hedges using a forward contract

1815 Gallons * BRL 90.15 = 163,622

Exchange Rate = 0.4227

Convert to USD = $69,163.02

Interest Rate of USD = 0.0215

Present Value in USD = $67,707.31

The company using the money market.

1815 Gallons * BRL 90.15 = 163,622

Interest Rate of BRL = 0.065

BRL to borrow = 153,635.68

Exchange Rate = 0.4368

Covert to USD = $67,108.07

Present Value in USD = $67,108.07

1- Bedsides the forward and money market, long option on $ is another way to hedge the currency risk. Assume the option strike price is $0.4010/Real and 1% fee paid upfront. If the spot exchange rate in 3 months is $0.4234/Real, what is the present option value of the sale?

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