Response to the following problem:
Consider this excerpt from Euromoney of September 1989:
Enterprise Oil itself recently purchased what it claims to be the biggest currency option obtained by a corporate client. In March it spent over $15 million as the premium on a 90-day currency option. The Chemical [Bank]-arranged option was used to lock in exchange rate protection on $1.03 billion of a $1.45 billion liability incurred in the acquisition of USbased gas transmission company, Texas Eastern. The need for the option arose since Enterprise Oil was paying for a dollar liability by raising sterling-denominated equity. The option is a dollar-call option which gives the company the right to buy dollars at a dollar/sterling exchange rate of $1.70 for a 90-day period.
Discuss: Enterprise Oil's financing strategy and rationale for the purchase of the currency options.