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

You source lce Cubes to sell in he US fram an Eskima village and you awe hem DKK 2,000,000 which is due in 60 days. Greeniand is part of Dermark and uses Darish Krana as its currency. If the Currency exchange rates and imerest rates are a as fallows what is your hedging decisian? 1 3 4Data Table sAmount (o be paid in DKK) 6 Days 7Spat Farward premium ar discour (calquate) Expected change in FX rae (caloulate) 10 dery what kind of Optian should be used Premium CALL Ouian 2,000,000 DKK 60 5.7200 DKKS 2 % DKK is sad at Premium 1.50% DKK is sald at Premium 1% 2% 5.7500 DKKS 5.7500 DKKS 12 Premium- PUT Opsan 13 CALL Strike Price 14 PUT Srike Price 15 densy which rate should be used 16 US barrawing AND invesing 17 Darish barrawing AND invesing ISCast of Capital (WACC) 5% 6% 10% 3% 4% 19 20 Questions: 21 1. If you remain unhedged,, how much will you pay in 60 days? 22 2. If you ener ino a farward cantract to buy he Dkr, haw much will yau pay? 2s 3. If you create a maney market hedge, haw much will you pay? 24 4. If you were to exercise he apian, haw much will you pay and when will you exercise he apian? 25 26 27 28 Sdluian: 21. Unhedaed position s0 a) Calculate expected rate 31 b) Translate to US dallars you hve o pay Spo 1+Premium n380) 32 33 34 2. Calculate proceeds from a forward hedge 35 a) Caloulate farward rate 36 b) Translate to US dallars you have to pay Spo 1+Premium "n380) 37 39 3. Calculate proceeds from a money market a) Find he amount you need to invest todary 41 b) Translate he amount fram a) to USD e) Adjust amount in USD (fram b) far Sme value of maney edge AP1+I rate"n/380) Amount USD1+WACCn380) 45 44 45 4. Option Hedge a) What opian should you buy Put ar Call 47b) Optian Strike price e) Pay in USD at he strike price d) Calculate cost of premium in USD so e) Adjust far Sme value of maney s Calculae atal paymen APISrike AP Optian Premium % / Spct Premium(1+WACCn380) -b) +d ) 52 53 You source lce Cubes to sell in he US fram an Eskima village and you awe hem DKK 2,000,000 which is due in 60 days. Greeniand is part of Dermark and uses Darish Krana as its currency. If the Currency exchange rates and imerest rates are a as fallows what is your hedging decisian? 1 3 4Data Table sAmount (o be paid in DKK) 6 Days 7Spat Farward premium ar discour (calquate) Expected change in FX rae (caloulate) 10 dery what kind of Optian should be used Premium CALL Ouian 2,000,000 DKK 60 5.7200 DKKS 2 % DKK is sad at Premium 1.50% DKK is sald at Premium 1% 2% 5.7500 DKKS 5.7500 DKKS 12 Premium- PUT Opsan 13 CALL Strike Price 14 PUT Srike Price 15 densy which rate should be used 16 US barrawing AND invesing 17 Darish barrawing AND invesing ISCast of Capital (WACC) 5% 6% 10% 3% 4% 19 20 Questions: 21 1. If you remain unhedged,, how much will you pay in 60 days? 22 2. If you ener ino a farward cantract to buy he Dkr, haw much will yau pay? 2s 3. If you create a maney market hedge, haw much will you pay? 24 4. If you were to exercise he apian, haw much will you pay and when will you exercise he apian? 25 26 27 28 Sdluian: 21. Unhedaed position s0 a) Calculate expected rate 31 b) Translate to US dallars you hve o pay Spo 1+Premium n380) 32 33 34 2. Calculate proceeds from a forward hedge 35 a) Caloulate farward rate 36 b) Translate to US dallars you have to pay Spo 1+Premium "n380) 37 39 3. Calculate proceeds from a money market a) Find he amount you need to invest todary 41 b) Translate he amount fram a) to USD e) Adjust amount in USD (fram b) far Sme value of maney edge AP1+I rate"n/380) Amount USD1+WACCn380) 45 44 45 4. Option Hedge a) What opian should you buy Put ar Call 47b) Optian Strike price e) Pay in USD at he strike price d) Calculate cost of premium in USD so e) Adjust far Sme value of maney s Calculae atal paymen APISrike AP Optian Premium % / Spct Premium(1+WACCn380) -b) +d ) 52 53