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A Malaysian importer with a 30 million Euros payable in 90 days wants to hedge his exposure. He has the following information:
MYR/ spot rate = RM4.64/.
MYR/ 90 day forward rate = RM4.87/ (your banks quote)
MYR/ 90 day futures rate = RM 4.86/
MYR/ 90 day Call option ex price RM4.86/, @0.03sen per Euro
MYR/ 90 day Put option ex price RM4.86/, @0.025sen per Euro
a) Outline the appropriate hedge strategy for the importer using currency forward, futures and options.
b) What MYR amount is locked-in when currency futures are used?
c) What is the net amount if options are used to hedge?
d) What expectation would justify the use of options?
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