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Use the Information for the Following Problem(s)

question 4

Multiple Choice

Use the information for the following problem(s) .
Plains States Manufacturing has just signed a contract to sell agricultural equipment to Boschin, a German firm, for euro 1,250,000. The sale was made in June with payment due six months later in December. Because this is a sizable contract for the firm and because the contract is in euros rather than dollars, Plains States is considering several hedging alternatives to reduce the exchange rate risk arising from the sale. To help the firm make a hedging decision you have gathered the following information.
∙ The spot exchange rate is $1.40/euro
∙ The six month forward rate is $1.38/euro
∙ Plains States' cost of capital is 11%
∙ The Euro zone 6-month borrowing rate is 9% (or 4.5% for 6 months)
∙ The Euro zone 6-month lending rate is 7% (or 3.5% for 6 months)
∙ The U.S. 6-month borrowing rate is 8% (or 4% for 6 months)
∙ The U.S. 6-month lending rate is 6% (or 3% for 6 months)
∙ December put options for euro 625,000; strike price $1.42, premium price is 1.5%
∙ Plains States' forecast for 6-month spot rates is $1.43/euro
∙ The budget rate, or the lowest acceptable sales price for this project, is $1,075,000 or $1.35/euro
-Refer to Instruction 10.1.If Plains States chooses not to hedge their euro receivable,the amount they receive in six months will be ________.

Definitions:

Communication Medium

The channel or method used to convey messages or information between individuals or groups.

Behavior Expectations

The anticipated and preferred actions or reactions of individuals in certain situations, often based on societal, cultural, or personal standards.

Relationship Rule

Guidelines or norms that govern the behavior of individuals within a relationship, helping to manage expectations and interactions.

Other-Oriented Approach

An interpersonal communication strategy emphasizing attentiveness to the needs, interests, and feelings of others in conversations or actions.