Currency Hedging Strategy for GlobalCorp

Very Hard Currency Management Currency Hedging

GlobalCorp, a multinational corporation, has significant exposure to the euro (EUR) as a result of its operations in Europe. The company expects to receive a cash inflow of €10 million in six months from a subsidiary's earnings. Given the current exchange rate is 1.15 USD/EUR, GlobalCorp is concerned about potential currency depreciation. However, they also believe that the euro could appreciate against the dollar due to strong economic indicators in the Eurozone. To manage this exposure, GlobalCorp is considering various hedging strategies.

Which of the following hedging strategies should GlobalCorp deploy to minimize their currency risk while retaining the potential for upside appreciation of the euro?

Purchase a forward contract to sell €10 million at the current forward rate.

Enter into a currency collar by selling a put option and buying a call option on the euro.

Buy an equity derivative linked to the euro to gain long exposure.

Hint

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