I Think about Diva Shoes exposure to excnange rate risk in April 1995. Suppose Diva chooses to hedge its exposure in YEN with the forward contract described in case Appendix A or the currency option described in case Appendix B. Assume that the strike price on the option and the forward price are given by interest rate parity for September 1995. Evaluate the payoffs from each strategy on the expiration date.
Just think about:
1. Which choice do you recommend for Diva?
2. Are there any other approaches you could recommend that Diva use to hedge its exchange rate risk?
3. Do you recommend Diva hedge their exposure?
4. If so, which alternative would you recommend?
Below is a spreadsheet template, which you can use to solve the case. The deliverable for this case is the completed spreadsheet, which you can upload on the course website by the due date.
