【文章內(nèi)容簡(jiǎn)介】 ation using the money market hedge and the forward hedges.(b) Assuming that the forward exchange rate is the best predictor of the future spot rate, pute the expected future dollar cost of meeting this obligation when the option hedge is used.(c) At what future spot rate do you think PCC may be indifferent between the option and forward hedge?Solution: (a) In the case of forward hedge, the dollar cost will be 500,000,000/110 = $4,545,455. In the case of money market hedge, the future dollar cost will be: 500,000,000()/()(124)= $4,147,465.(b) The option premium is: (.014/100)(500,000,000) = $70,000. Its future value will be $70,000() = $75,600. At the expected future spot rate of $.0091(=1/110), which is higher than the exercise of $.0081, PCC will exercise its call option and buy 165。500,000,000 for $4,050,000 (=500,000,).The total expected cost will thus be $4,125,600, which is the sum of $75,600 and $4,050,000.(c) When the option hedge is used, PCC will spend “at most” $4,125,000. On the other hand, when the forward hedging is used, PCC will have to spend $4,545,455 regardless of the future spot rate. This means that the options hedge dominates the forward hedge. At no future spot rate, PCC will be indifferent between forward and options hedges.7. Airbus sold an aircraft, A400, to Delta Airlines, a . pany, and billed $30 million payable in six months. Airbus is concerned with the euro proceeds from international sales and would like to control exchange risk. The current spot exchange rate is $€ and sixmonth forward exchange rate is $€ at the moment. Airbus can buy a sixmonth put option on . dollars with a strike price of €$ for a premium of € per . dollar. Currently, sixmonth interest rate is % in the euro zone and % in the .a. Compute the guaranteed euro proceeds from the American sale if Airbus decides to hedge using a forward contract.b. If Airbus decides to hedge using money market instruments, what action does Airbus need to take? What would be the guaranteed euro proceeds from the American sale in this case? c. If Airbus decides to hedge using put options on . dollars, what would be the ‘expected’ euro proceeds from the American sale? Assume that Airbus regards the current forward exchange rate as an unbiased predictor of the future spot exchange rate.d. At what future spot exchange rate do you think Airbus will be indifferent between the option and money market hedge?Solution:a. Airbus will sell $30 million forward for €27,272,727 = ($30,000,000) / ($€).b. Airbus will borrow the present value of the dollar receivable, ., $29,126,214 = $30,000,000/, and then sell the dollar proceeds spot for euros: €27,739,251. This is the euro amount that Airbus is going to keep. c. Since the expected future spot rate is less than the strike price of the put option, ., € €, Airbus expects to exercise the option and receive €28,500,000 = ($30,000,000)(€$). This is gross proceeds. Airbus spent €600,000 (=,000,000) upfront for the option and its future cost is equal to €615,000 = €600,000 x . Thus the net euro proceeds from the American sale is €27,885,000, which is the difference between the gross proceeds and the option costs.d. At the indifferent future spot rate, the following will hold:€28,432,732 = ST (30,000,000) €615,000. Solving for ST , we obtain the “indifference” future spot exchange rate, ., €$, or $€. Note that €28,432,732 is the future value of the proceeds under money market hedging: €28,432,732 = (€27,739,251) ().Suggested solution for Mini Case: Chase Options, Inc.[See Chapter 13 for the case text]Chase Options, Inc.Hedging Foreign Currency Exposure Through Currency OptionsHarvey A. PoniachekI. Case SummaryThis case reviews the foreign exchange options market and hedging. It presents various international transactions that require currency options hedging strategies by the corporations involved. Seven transactions under a variety of circumstances are introduced that require hedging by currency options. The transactions involve hedging of dividend remittances, portfolio investment exposure, and strategic economic petitiveness. Market quotations are provided for options (and options hedging ratios), forwards, and interest rates for various maturities.II. Case Objective. The case introduces the student to the principles of currency options market and hedging strategies. The transactions are of various types that often confront panies that are involved in extensive international business or multinational corporations. The case induces students to acquire handson experience in addressing specific exposure and hedging concerns, including how to apply various market quotations, which hedging strategy is most suitable, and how to address exposure in foreign currency through cross hedging policies.III. Proposed Assignment Solution1. The pany expects DM100 million in repatriated profits, and does not want the DM/$ exchange rate at which they convert those profits to rise above . They can hedge this exposure using DM put options with a strike price of . If the spot rate rises above , they can exercise the option, while if that rate falls they can enjoy additional profits from favorable exchange rate movements.To purchase the options would require an upfront premium of:DM 100,000,000 x = DM 1,640,000.With a strike price of DM/$, this would assure the . pany of receiving at least:DM 100,000,000 – DM 1,640,000 x (1 + x 272/360)= DM 98,254,544/ DM/$ = $57,796,791by exercising the option if the DM depreciated. Note that the proceeds from the repatriated profits are reduced by the premium paid, which is further adjusted by the interest foregone on this amount.However, if the DM were to appreciate relative to the dollar, the pany would allow the option to expire, and enjoy greater dollar proceeds from this increase.Should forward contracts be used to hedge this exposure, the proce