Hedging with Currency Derivatives
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The Superbowl Champs, New York Giants plans to play in the United Kingdom next year. All expenses will be paid by the British government and the Giants will receive a check for $1million pounds. The team anticipates that the pound will depreciate substantially by the scheduled game date. The NFL's approval will not occur for three months.
How can the team hedge it position? What is there to lose by waiting three months to see if the exhibition game is approved before hedging?
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The team could purchase put options on pounds in order to lock in the amount at which it could convert the 1 million pounds to dollars. The expiration date of the put option should correspond to the date ...
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