Tile Hill Tyres Ltd is a UK company

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Tile Hill Tyres Ltd is a UK company. It is expecting to receive payments of $5 million in three months' time. The current spot rate is $1.38/E. The company is considering three alternatives: 1) Hedge the receipt using a 3-month forward contract at the rate of $1.35/E 2) Hedge the receipt by using an OTC option from the bank, giving Tile Hill Tyres Ltd the option to sell $ at a strike price of $1.36/f for a premium of 1.2p per $ 3) Do nothing Required: a) In each case, compare the results if in three months' time the exchange rate has moved to a. $1.32/E b. $1.44/E and comment on the results (60 Marks) b) Calculate the exchange rate at which it would be beneficial to use the option rather than the forward. (15 Marks) c) Critically appraise the use of currency options to manage exchange rate risk. (25 Marks) (Total 100 Marks)