1. Currency Hedging MJY plc December 05 Mark Fielding-Pritchard mefielding.com1

2. MJY  We can ignore £s as we are British mefielding.com2 Receive$€ MJY14075 Sub 160177 Sub 23087 Total230339 Pay$€ MJY29072 Sub 1085 Sub 25085 Total340242 Hedging110 Payment97 Receipts Mistake in question!! MJYs payments are 120 + 170!!

3. MJY- Payment $110  Forward We need dollars to make payment in 3 months  110000/1.7835= £61676 payable in 3 months  Option  We need to sell pounds (pound is foreign currency as exchange in in US)- Puts  February puts will close in February so we need May, use (or not in March)  We need one mefielding.com3 Strike Including Premium 1.800.05341.7466 1.780.0421.7380

4. MJY- Payment $110  Option  MJY will give pounds, they want to receive as many dollars as possible for each pound so hey will choose $1.80 (which is why it is the most expensive)  Premium cost $0.0534 x 62500= $3338  @1.7982 = £1856  Assuming we exchange the cost will be £62500 which gives us $112500  We pay $110000 then exchange $2500 back at spot (assume 1.7861)= £1400 Net option outflows 1856 + 62500- 1400= £62956 Forward £ 61676 So we use forward mefielding.com4

5. MJY- Receipt €97  Forward  (97000/1.4390)= £67408  Only possibility in question mefielding.com5

6. Warren Buffett- Derivatives Advantages  Allow risk mitigation  Can be cheap  Liquid  Accounts require mark to markets  Accounts require disclosures Disadvantages  Used for speculation  Used by people who don’t understand them  Full risks may be unmeasurable  Market crashes may give unforeseen consequences  IT trading systems can introduce illogical decisions  New derivatives introduced so fast that risk departments don’t understand what has happened mefielding.com6