Hedging Options for Global Sales: Forward Contract, Money Market Instruments, and Put Options

RUNNING HEAD: HEDGING
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UNIVERSITY NAME
STUDENT NAME
STUDENT ID
COURSE
DATE

HEDGING
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EXECUTIVE SUMMARY.
The purpose of this report is to determine various options regarding the global sales and the
company’s interest with controlling various risks associated with their business. They therefore
want to establish a useful hedge option to implement in order to cushion and minimize such
risks. This report therefore will compute various proceeds if the company decides to hedge
through use of either forward contract, money market instruments or through use of put options.
It also determines the future spot rate that the company will be indifferent between the option
and the money market option.

HEDGING
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Table of Contents
INTRODUCTION........................................................................................................... 4
PROCEEDS FROM AMERICAN SALE FORWARD CONTRACT.............................................4
HEDGE USING MONEY MARKET INSTRUMENTS.............................................................4
HEDGING USING PUT OPTIONS AND EXPECTED EURO PROCEEDS FROM AMERICAN SALE
................................................................................................................................... 6
FUTURE SPOT EXCHANGE RATE OF INDIFERRENCE BETWEEN OPTION AND MARKET
HEDGE........................................................................................................................ 7
CONCLUSION............................................................................................................... 8
REFERENCES................................................................................................................ 9