Jordan Corp is a US manu8facturer of auto pats with branchoperatiopns in France. on December 31, 2018 wishesto use a foreign currency option to hedge a 10,000,000 euro denominated accounts receivable that is due in two years. Jordan plans to use fair value hedge accounting. Over the subsequent 4 quarters the following are the changes in fair value of the receivable and the forreign currency option hedge. 1) Quarter ended March 31, 2019: Euro receivable increases by $400,000 Option hedge declines by $350,000 2) Quater ended June 30, 2019: Euro receivable decreases by $500,000 Option hedge increases by $400,000 3) Quarter ended Sept 30, 2019: Euro receivable decreases by $800,000 Option hedge increases by $700,000 4) Quarter ended Dec. 31, 2019: Euro receivable increases by $200,000 Option hedge declines by $100,000 Questions: a) Structure the appropriate fair value hedge using an FX option. Answer must state whether Jordan is purchasing or selling an option, what is the expiration date of the option as well as whether it is an option to purchase euros and sellUS dollars or an option to purchaseUS dollars and sell euros. Thank you
Jordan Corp is a US manu8facturer of auto pats with branchoperatiopns in France. on December 31, 2018 wishesto use a foreign currency option to hedge a 10,000,000 euro denominated
1) Quarter ended March 31, 2019:
Euro receivable increases by $400,000
Option hedge declines by $350,000
2) Quater ended June 30, 2019:
Euro receivable decreases by $500,000
Option hedge increases by $400,000
3) Quarter ended Sept 30, 2019:
Euro receivable decreases by $800,000
Option hedge increases by $700,000
4) Quarter ended Dec. 31, 2019:
Euro receivable increases by $200,000
Option hedge declines by $100,000
Questions:
a) Structure the appropriate fair value hedge using an FX option. Answer must state whether Jordan is purchasing or selling an option, what is the expiration date of the option as well as whether it is an option to purchase euros and sellUS dollars or an option to purchaseUS dollars and sell euros.
Thank you
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