Masons intends to purchase goods valued at £2.09 million, with payment due in one year. To mitigate the exchange rate risk associated with the £2.09 million payment, Masons is considering the forward market hedging strategy.
Using the data provided in Table 1, determine the cost in Chinese yuan (CNY) when employing the forward market hedging strategy. (Please input the value as a whole number, excluding any signs or symbols).
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TABLE 1 |
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For Chinese yuan (CNY) |
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Spot rate |
£0.3755/CNY |
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One-year forward rate |
£0.5381/CNY |
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One-year CNY deposit and borrowing rate |
8.48% |
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One-year call options |
Exercise price = £0.52 |
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Premium = £0.03 |
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|
One-year put options |
Exercise price = £0.58 |
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Premium = £0.06 |
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For British Pound (£) |
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Spot rate |
CNY3.5909/£ |
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One-year forward rate |
CNY1.918/£ |
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One-year £ deposit and borrowing rate |
4.71% |
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One-year call options |
Exercise price = CNY1.64 |
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Premium = CNY0.17 |
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|
One-year put options |
Exercise price = CNY1.65 |
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Premium = CNY0.14 |
To determine the cost in Chinese yuan (CNY) when employing forward market hedging strategy, we can calculate it using forward rate.
The forward rate is £0.5381/1 CNY for one year.
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