Forward Rate Assignment | Homework For You

Kansas Corp., an American company, has a payment of €6.1 million due to Tuscany Corp. one year from today. At the prevailing spot rate of 0.90 €/$, this would cost Kansas $6,777,778, but Kansas faces the risk that the €/$ rate will fall in the coming year, so that it will end up paying a higher amount in dollar terms. To hedge this risk, Kansas has two possible strategies. Strategy 1 is to buy €6.1 million forward today at a one-year forward rate of 0.89 €/$. Strategy 2 is to pay a premium of $111,000 for a one-year call option on €6.1 million at an exchange rate of 0.88 €/$. points X 00:52:54) a. Suppose that in one year the spot exchange rate is 0.85 €/$.
What would be Kansas’s net dollar cost for the payable under each strategy? (Round your answer to the nearest whole dollar amount.) eBook Net Dollar Cost Print Strategy 1 Strategy 2 References b. Suppose that in one year the spot exchange rate is 0.95 €/$.
What would be Kansas’s net dollar cost for the payable under each strategy? (Round your answer to the nearest whole dollar amount.) Net Dollar Cost Strategy 1 Strategy 2. Get Finance homework help today