XYZ Ltd., a U.S. firm, will require £ 300,000 in 180 days and is evaluating different strategies to hedge against currency risk. The available…
CA Final · Advanced Financial Management · MTP · September 2025
XYZ Ltd., a U.S. firm, will require £ 300,000 in 180 days and is evaluating different strategies to hedge against currency risk. The available market data is as follows: Current Spot Rate: 1 £ = $ 2.00 180-Day Forward Rate: 1 £ = $ 1.96 Interest Rates: UK (180 days):Deposit Rate: 4.50%Borrowing Rate: 5.00%US (180 days):Deposit Rate: 5.00%Borrowing Rate: 5.50% Option Contract: Call option available on £, expiring in 180 days with:Exercise Price: $ 1.97Premium: $ 0.04 XYZ Ltd. has forecasted the following probabilities for spot rates after 180 days: Spot Rate Probability $ 1.91 25% $ 1.95 60% $ 2.05 15% From the information given above, choose the correct answer to the following questions:
Suggested Answer and Working Notes:
Correct Answer: Option (D)
$ 5,86,500
Topics: Foreign Exchange Exposure and Risk Management
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