FIN406 | Finance in Business - Pennsylvania State University

Question 1: Assume a Saudi Multinational Corporation decided to do a project in Germany one year ago (October 1st, 2021) which would be completed on September 30th, 2022. If the project cost 100 million Euro and expected to generate income of 150 million Euro on September 30th, 2022. The exchange rate at the beginning of the project is 0.23 Euro/SAR and it is 0.27 Euro/SAR at the end of the project. There is no derivative bearing SAR currency, but there is a way a Saudi firm engage into the forward / option market. a- Calculate the initial investment in SAR. b- show the choices for financing this project by the Saudi firm? Just show without calculation. c- Calculate profit from this investment in Euro and SAR, also show whether the Saudi firm hurt or benefit from changes in the exchange rate movement. d- How would the Saudi firm hedge against the exchange rate risk?