Assume you import 1 million Euro of computer from Europe from France and you hav

Question

Assume you import 1 million Euro of computer from Europe from France and you have to make the payment in Euro and pay in September. To hedge against rate uncertainty, you can buy a September option (Euro option has a fixed amount, 125,000 Euro per contract). You would like to have a strike price $1.31 per Euro and the option price is $2500 per contract.

Will you buy the option?

If you buy the option, on the maturity date, the spot rate is $1.34 per Euro, will you exercise the option or use the spot transaction?

If on the maturity date, the spot rate is $1.29 per Euro, will you exercise the option? Please explain.

Explanation / Answer

1. Yes i Will buy the option.

2. I will use the spot transaction.

3. Yes will exercise the option because strike rate is less than purchaseing strike rate.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.