Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
The Thailand Plettery Steel Company has a debt of nzd 100,000, which is
repayable in twelve months. Plettery’s controller Jane Due is having trouble
sleeping at night knowing that the debt is unhedged. The current thb/nzd
exchange rate is 20, and p.a. interest rates are 21 percent on thb and 10 percent on nzd. Jane is considering a forward hedge (at Ft,T = 20 × 1.21/1.10 = 22), but a friend tells her that he recently bought a call on nzd 100,000 with X = 20, and is willing to sell it to her at the historic cost, thb 1 per nzd or thb 100,000 for the total contract. What should she do?
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