This report provides a comprehensive analysis of treasury and risk management, focusing on the case of ABC Company, a US-based entity expecting a Euro payment. It explores the impact of currency fluctuations (USD/EUR) and evaluates various hedging strategies to mitigate foreign exchange risk. The report details the unhedged strategy, forward hedge strategy, money market hedge strategy, and option hedge strategy, calculating potential gains and losses under different scenarios. It assesses the costs, benefits, risks, and returns associated with each approach, recommending the most suitable strategy for ABC Company. The analysis incorporates interest rate parity and examines the implications of currency appreciation and depreciation, providing a detailed financial assessment of each hedging method. The report concludes with a recommendation based on the comparative analysis of the strategies.
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