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FIN4180 Group assignment 2: How to manage/hedge receivable. Huntsman Corporation uses a...

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Finance

FIN4180 Group assignment 2: How to manage/hedge receivable.

Huntsman Corporation uses a variety of Forex hedging strategies. In 2018, the company disclosed is has $581

million in Euro denominated debts.
as hedge for net investments in Europe. It has $151 million in forward contract that is about one year in maturity.
It also reported that the company closed out a $200 million cross currency swap agreement.

For the $581 Euro demoninated debts, it reported gain of $35 millon, loss of $96 million and gain of $27 million

in 2018, 2017 and 2016 respectively.
Let's see how that $151 million in Euro forward can be hedged:
US rate 3%
Germany 5%
Spot 1.1235 N/A forward 1.107373
1-year forward at 1.1075
1-year call option with strike of $1.1075 is $0.01, 1-year put option with strike of 1.1075 is $0.015
What's the gains/losses if HUN hedged with: 1 money market 2. forward 3. option 4. no hedge
and the spot rate in one year turns out to be 1.1105?

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