Need assistance in getting started on a paper for the following -
When you sell a product made in the Euro area in the U.S. The price increases have sharply cut you sales. You are worried that the Euro will increase again causing a further loss. You can buy a currency hedge for 2009 that would allow you to convert dollars into Euros at $1.59, regardless of the higher conversion rate. The Hedge will cost 4% of the amount exchanged but the hedge must be bought now and the 5% will be paid even if the option is not used.
I need to get a start understanding under what conditions will it be profitable and should the hedge be bought?