Question: Lucky 13. Lucky 13 Jeans of San Antonio, Texas, is completing a new assembly plant near Guatemala City. A final construction payment of Q8,400,000 is due in six months. ("Q" is the symbol for Guatemalan quetzals.) Lucky 13 uses 20% per annum as its weighted average cost of capital. Today's foreign exchange and interest rate quotations are as follows:
Lucky 13's treasury manager, concerned about the Guatemalan economy, wonders if Lucky 13 should be hedging its foreign exchange risk. The manager's own forecast is as follows:
What realistic alternatives are available to Lucky 13 for making payments? Which method would you select and why?