Transaction Exposure Practice (1).docx

Transaction Exposure Practice (1).docx - Company A expects...

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Company A expects an outflow of £1,000,000 (in one year). The existing spot rate of the Pound (£) is $1.43/£. The 1 year forward rate is $1.429/£. Assume the following money market rates: U.S. U.K. Borrow/Lend rate 3% 3% There are calls and puts for the euro available with an exercise price of $1.410/£. The premium for the call is $0.03/£ and the premium for the put is $0.02/£. Given this information, calculate the value of each hedge, and be able to discuss when each
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