Analyzing bechtels hedging strategy


Assignment:

Suppose that Bechtel Group wants to hedge a bid on a Japanese construction project. However, the yen exposure is contingent on acceptance of its bid, so Bechtel decides to buy a put option for the ¥15 billion bid amount rather than sell it forward. In order to reduce its hedging cost, however, Bechtel simultaneously sells a call option for ¥15 billion with the same strike price. Bechtel reasons that it wants to protect its downside risk on the contract and is willing to sacrifice the upside potential in order to collect the call premium. Comment on Bechtel’s hedging strategy.

Your answer must be, typed, double-spaced, Times New Roman font (size 12), one-inch margins on all sides, APA format and also include references.

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Operation Management: Analyzing bechtels hedging strategy
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