Discuss the pros and cons of using forwards or options to, Financial Management

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Discuss the pros and cons of using forwards or options to

(b) Suppose that the Irish construction company Sisk Group orders 10 trucks from the US company Caterpillar for delivery in 9 months time at a cost of $2,000,000. Show how Sisk Group can hedge this FX exposure using forward contracts. The current EURUSD spot price is 0.94 (1 USD = 0.94 EUR) and the forward price is 0.88.

(c) Discuss the pros and cons of using forwards or options to hedge financial risk. Should firms hedge financial risk or not, in your opinion?

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