Currency Risk Management Techniques Include Forward Hedges, Money Market Hedges

question 27

Essay

Currency risk management techniques include forward hedges, money market hedges, and option hedges. Draw a diagram showing the possible outcomes of these hedging alternatives for a foreign currency receivable contract. In your diagram, be sure to label the X and Y-axis, the put option strike price, and show the possible results for a money market hedge, a forward hedge, a put option hedge, and an uncovered position. (Note: Assume the forward currency receivable is British pounds and the put option strike price is $1.50/£, the price of the option is $0.04 the forward rate is $1.52/£ and the current spot rate is $1.48/£.)

Understand the concept and elements of self-leadership.

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Definitions:

Dialkyl Ethers

Organic compounds consisting of an oxygen atom bonded to two alkyl groups, often characterized by their ether functional group, R-O-R'.

IUPAC

International Union of Pure and Applied Chemistry, an organization that sets standards for naming chemical compounds.

Epoxypentan-1-ol

An organic compound featuring a five-carbon chain with an epoxide ring (a three-membered ring consisting of an oxygen atom and two carbon atoms) and a hydroxyl group at the first carbon.

Hydroxyethyl

A functional group or moiety featuring an ethyl backbone attached to a hydroxyl group, often represented as -CH2CH2OH.