You source ice cubes to sell in the US from an Eskimo village in Greenland and you owe them DKK 2,500,000 which is due in 60 days. Greenland is part of Denmark and uses Danish Krona (DKK) as its currency. If the Currency exchange rates and interest rates are a as follows what is your hedging decision?

Data Table
Amount (to be paid in DKK)	DKK 2,500,000
Days	60
Spot	DKK 5.6500/$
Forward premium (discount)	DKK is sold forward at Premium of 2%
Expected FX rate	DKK 5.6400/$
Identify what kind of Option should be used
Premium - CALL Option	1%
Premium - PUT Option	2%
CALL Strike Price	DKK 5.6800/$
PUT Strike Price	DKK 5.6800/$
Identify which rate should be used
US borrowing AND investing rate	5% and 3% respectivelly
Danish borrowing AND investing rate	6% and 4% respectivelly
Cost of Capital (WACC)	10%

Using data in the table above, you need to calculate proceeds of different hedging alternatives.

1. How much will you have to pay in USD, if you choose to Remain Unhedged

2. Compute the 60-day forward rate of DKK per 1 USD (DKK/$) using the forward premium. (Round your answer to 4 decimals).

3.Find how much you will have to pay in 60 days if you choose to hedge in the forward market. (Round your answer to 2 decimals).

4.Find the amount you need to invest today in DKK.

5. How much USD will you need to spend today to buy DKK needed for the investment (Hint: translate the DKK from previous question to USD).

6. Find how much you will have to pay in 60 days in USD, if you hedge in the money market. (Hint: find the future value in 60 days of the amount from the previous question).

7.

What option should you buy?

Call or Put

8.Calculate the cost of the option (premium) in USD today.

9.Carry the option's premium 60 days into the future (Hint: find future value of the option premium from the previous question in 60 days).

10. If you exercise the option at a strike price, how much will you have to pay in USD for the needed amount of DKK?

11.Find the total cost of the Payables in USD if you hedge on the option market and exercise the option? (Hint: compute total cost including the FV of the option premium)