Ferguson Cookie Company Case

4. What happens if sales volumes are lower or higher than expected as outlined at the end of the case?
Base Case

Sales Volume | 25,000 | Number of options | 25,000 | Number of Contracts | 25,000 | Cost per participants | 1,000 Euro | Option Strike Price | 1.22 | Forward Strike Price | 1.22 | | | Option Premium | 61 | | |

Total Cost (USD)

| | | USD Exchange Rate (USD/EUR) | | %Cover | Contracts | Options | 1.01 | 1.22 | 1.48 | 100% | 0% | 100% | $26,775,000 | $32,025,000 | $32,025,000 | 100% | 100% | 0% | $30,500,000 | $30,500,000 | $30,500,000 | 0% | - | - | $25,250,000 | $30,500,000 | $37,000,000 | | | | | | | | | | USD Exchange Rate (USD/EUR) | | %Cover | Contracts | Options | 1.01 | 1.22 |
When the sales are low and the company is out of money, the company has an excess of currency. The option contract is more favourable in this situation. When the sales are the low and the company is in the money, the forward contract is more favourable because option contracts costs more.

Higher Sales
When the sales are higher and the company is out of money, option contract is favourable because company has not to buy Euro at higher rate. When the sales are higher and the company is in money, the company loss is in difference on volume of sales and the increase of the exchange rates.
5. What hedging decision would you