I can only follow the simple steps offered by books...However, I do wanna get a higher grade for this presentation. I need more complicated methods, professional supports and sysmetic analysis to work it out. Bully gods!! I need you guys' help!!!

You havejust been hired as a Financial Analyst at Doogle, Inc., a Web service provider.

Your boss,Jane McConnell, the corporate Treasurer, has given you the assignment offiguring out how to hedge two large foreign exchange exposures the firm hasacquired.  She expects you to follow thecorporate policy of covering all foreign exchange exposures.  Policy does allow the use of currencyoptions, however, as long as the exposure is fully covered.  You will be evaluated on the performance ofyour hedges when the exposures are settled. Here are the two exposures:

            1. An accounts receivable (A/R) of PoundSterling £10 million due on May 4

            2. An accounts payable (A/P) of Japanese¥700 million due on May 4

You areexpected to make your hedging recommendations by April 3.  The Treasurer wants a brief written report inthe form of a memo outlining the hedging strategy for each exposure and therationale for it.  She will evaluate yourperformance based on the net value of the two cash flows in US dollars on May 4while following the company’s hedging policies.

You callup the banker who handles the firm’s FX exposures.  He quotes you the following rates for currencyforwards and options as well as interest rates at which you can borrow andinvest in different currencies.  He alsoexpresses his opinion that the US dollar will strengthen against both the poundand the yen in the next month.

            Spot rates:

                        Sterling:           $1.5862/£

                        Yen:                ¥83.71/$

            Forward rates (one month):   

                        Sterling:           $1.5859/£

                        Yen:                ¥83.68/$

            Currency options (one month):

                        Sterling:           Strike of $1.58/£

                                                Put:  premium = $0.008/£

                        Yen:                Strike of ¥83/$

                                                Call:premium = $0.000061/¥

            Money rates (annual):

                        U.S.                 Invest = 2.50%, Borrow = 3.25%

                        Britain             Invest = 2.65%, Borrow = 3.35%

                        Japan               Invest= 2.20%, Borrow = 2.60%