1) FHC Inc., a U.S. corporation, has an account payable due in 90 days. Use the following information to evaluate the optimal strategy of hedging its transactional exposure: Amount to be paid = 1,000,000 Euros Spot exchange rate = $1.32/Euro Three-month forward rate = $1.28/Euro MIB’ s cost of capital = 12% Euro 90-day borrowing interest rate = 10% p.a. Euro 90-day investment interest rate = 8% p.a. US$ 90-day borrowing interest rate = 8% p.a. US$ 90-day investment interest rate = 6% p.a. 3-month put option on Euro strike price = $1.
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