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Explain the exact strategy

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Question

Cycle and Carriage (C-C), a Malaysian importer and distributor of Mercedes Benz cars have €15 million payable to Daimler - Benz of Germany, in 60 days. Given the problems in Europe, there has been extreme volatility in the MYR /EURO exchange rate. You have been asked to advise C-C on how best to handle this exposure. C-C is open to using either FX forward or FX Option contracts if necessary. You have been provided with the following information.

MYR/EURO Spot = RM4.05

MYR/EURO 30-day Forward = RM3.98

MYR/EURO 60-day Forward = RM3.825

MYR/EURO 90-day Forward = RM3.74

Fee for Forward = RM 5,000 flat rate

60-days Option Exercise Price = RM 3.825

Fee for 60-days RM3.825 exercise price Option = RM25, 000

1) Explain the exact strategy and the MYR amount to be locked in if forward is used.

2) Explain the exact strategy and the MYR amount to be locked in if the option is used.

3) Given the information in the case, discuss the best course of action.

Reference no: EM133305503

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