Please read the .pdfs of each case (Dozier A & Dozier B) and please give the methodology to solving each question below (basically a step by step on how to solve each question.) I do not need an Excel workings, sources, and please make sure everything is originally written, no plagiarism. Thank you.
Questions:
Dozier Industries (A)
1. Exactly what is Mr. Rothschild’s exposure? If the price of the pound falls from its current price
of $1.4480, will Rothschild win or lose?
2. According to Exhibit 5, has Rothschild’s profit or loss changed over the last day?
3. Based on the most recent information you can find, what is the expected future spot rate for
April 14, 1986?
4. Of the two hedging techniques, the forward and the spot hedges, which is more profitable? Do
they have equivalent risk?
5. What should Richard Rothschild do?
Dozier Industries (B)
1. If Mr. Rothschild elects to use an option hedge, exactly how should he do it? Should he buy a
call, buy a put, sell a call or sell a put?
2. Which option or options from Exhibit 2 would you use? Why?
3. How is the option hedge better or worse using a forward contract? Which hedging technique
should Mr. Rothschild use?
4. Looking back on his situation on December 3, 1985, should Mr. Rothschild have used a
forward hedge at that time? An option hedge
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