Trident is a US company that sells goods to crown, a British firm in March for...

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Trident is a US company that sells goods to crown, aBritish firm in March for Sterling pounds 1,000,000. Payments aredue in three months that is June. Trident cost of capital is 12%.The following quotes are available:
a. spot exchange rate: $1.7640/pound
b. Three month forward rate: $1.7540/pound
c. UK 3 month borrowing interest rate is 8% p.a (or 2% perquarter)
d. US 3 month rate is 8% p.a (or 2% per quarter)
e. US 3 month investment rate is 6% p.a (1.5 per quarter)
June put options on the stock exchange of 12,500 pounds, strikeprice is $1.75; 1.5% per pound premium, and brokerage cost $25 percontract.
June put option in the OTC market 1,000,000 pounds;strike price is $1.75; 1.5% premium. Trident foreign exchangeadviser forecasts that the spot rate in 3 months will be$1.76/pound.
REQUIRED
i. Remain unhedged position
ii. Hedge in the forward market
iii. Hedge in the money market
iv. Hedge in the capital market

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SummaryThe above question seeks to test the students knowledge in boththe areas of foreign currency management and the hedging See Answer

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Trident is a US company that sells goods to crown, aBritish firm in March for Sterling pounds 1,000,000. Payments aredue in three months that is June. Trident cost of capital is 12%.The following quotes are available:a. spot exchange rate: $1.7640/poundb. Three month forward rate: $1.7540/poundc. UK 3 month borrowing interest rate is 8% p.a (or 2% perquarter)d. US 3 month rate is 8% p.a (or 2% per quarter)e. US 3 month investment rate is 6% p.a (1.5 per quarter)June put options on the stock exchange of 12,500 pounds, strikeprice is $1.75; 1.5% per pound premium, and brokerage cost $25 percontract.June put option in the OTC market 1,000,000 pounds;strike price is $1.75; 1.5% premium. Trident foreign exchangeadviser forecasts that the spot rate in 3 months will be$1.76/pound.REQUIREDi. Remain unhedged positionii. Hedge in the forward marketiii. Hedge in the money marketiv. Hedge in the capital market