Which alternative would you choose and why

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Reference no: EM131931593

Question: ABC corporation has just sold equipment to a French company exports worth FF 80 million with payment due in 3 months. The spot rate is FF 7.4/$ and the 3 month forward rate is FF 7.5/$. Also assume:

3 month French interest rate 9% p.a.

3 month U.S. interest rate 4%p.a.

3 month call option on Francs at FF 7.5/$ (strike price) 3% premium

3 month put option on Francs at FF 7.5/$(Strike Price) 2.4% premium

a. How can ABC hedge this risk?

B. Which alternative would you choose and why?

Please show me how to do the answers, not just the answer, so I can learn

Reference no: EM131931593

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