Statoil sold 1 million barrels of crude oil to the Norwegianpetrol station chain,Circle K,todayfor 120 Nok per barrel (Nok denotes the Norwegian Krone). Statoil expects to receive the full payments from Circle K in 3 months’ timewhen the crude oil is deliveredto Circle K’s facilities in Norway. Statoil is informed that Circle K will pay for the oil in Norwegian Krone. Ari is asked by the Chief Financial Officer(CFO)about thestrategy to reduce the uncertainty around the expected payment from Circle K. Ariis faced with the following market rates :Spot exchange RateNok 6.0312/$ 3-month forward rateNok 6.0186/ $U.S. dollar 3-month interest rate 5% Norwegian Krone 3-month interest rate4.45% Based on the above information, what hedging strategy shouldAri advise the CFO that works the best for Statoil? Explain why Ari shouldchoose such hedgingstrategy. How much U.S.dollar will Statoil receive at the end of 3 months by using this hedging strategy?
Statoil sold 1 million barrels of crude oil to the Norwegianpetrol station chain,Circle K,todayfor 120 Nok per barrel (Nok denotes the Norwegian Krone). Statoil expects to receive the full payments from Circle K in 3 months’ timewhen the crude oil is deliveredto Circle K’s facilities in Norway. Statoil is informed that Circle K will pay for the oil in Norwegian Krone. Ari is asked by the Chief Financial Officer(CFO)about thestrategy to reduce the uncertainty around the expected payment from Circle K. Ariis faced with the following market rates
:Spot exchange RateNok 6.0312/$
3-month forward rateNok 6.0186/
$U.S. dollar 3-month interest rate 5%
Norwegian Krone 3-month interest rate4.45%
Based on the above information, what hedging strategy shouldAri advise the CFO that works the best for Statoil? Explain why Ari shouldchoose such hedgingstrategy. How much U.S.dollar will Statoil receive at the end of 3 months by using this hedging strategy?
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