Risk management attributes of a eur

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Reference no: EM13194879

Problem 1

What pairing of options would come closest to achieving the same risk management attributes of a EUR/USD six month forward contract? Why?

Your deepening understanding of option strategies has CEO Majors quite impressed. She's asked for a simple demonstration, which you prepare and deliver.

Problem 2

Assuming only the fact-set presented, what strategy would you suggest to limit most of the currency risk on a substantial sale to a European customer, while at the same time minimizing transaction costs to the Company?

Problem 3

Assume the sale price is set at $1,000,000 and the contract specified payment of 769,231 Euros in six months upon delivery. Using your suggested strategy, prepare a calculation of the ultimate dollar revenues received, net of option costs, assuming the six month EUR/USD actually ends up being 1.25, 1.30 and 1.35. Also, present a side calculation of what would occur if no mitigation strategy was used.

Reference no: EM13194879

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