Section B - Case 3: GlobalLogix
Scenario: GlobalLogix is a cross-border logistics firm based in the Eurozone (€). The company expects to receive $2,000,000 from a US client in 3 months' time.
Current spot rate ($/€): 1.1500 - 1.1550
3-month forward rate ($/€): 1.1600 - 1.1660
Eurozone interest rates: Borrow 2.0% per year, Deposit 1.0% per year.
US interest rates: Borrow 4.0% per year, Deposit 3.0% per year.
If GlobalLogix uses a forward contract to hedge this receipt, how many Euros (€) will they receive in 3 months?
ACCA · Question 30 · Risk Management
Section B - Case 3: GlobalLogix
Scenario: GlobalLogix is a cross-border logistics firm based in the Eurozone (€). The company expects to receive $2,000,000 from a US client in 3 months' time.
Current spot rate ($/€): 1.1500 - 1.1550
3-month forward rate ($/€): 1.1600 - 1.1660
Eurozone interest rates: Borrow 2.0% per year, Deposit 1.0% per year.
US interest rates: Borrow 4.0% per year, Deposit 3.0% per year.
GlobalLogix is also considering using currency options to hedge the receipt.
Which TWO of the following statements regarding currency options are correct?
Answer options:
Options protect against adverse exchange rate movements while allowing the company to benefit from favorable movements.
Options require the payment of an upfront, non-refundable premium.
A company expecting to receive foreign currency should buy a call option.
Options are legally binding obligations to exchange currency at the strike price.
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