(Show all the work) 30. BE SURE TO SHOW AND LABEL ALL COMPUTATIONS BELOW. ALSO,
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(Show all the work)
30. BE SURE TO SHOW AND LABEL ALL COMPUTATIONS BELOW. ALSO, BE SURE TO PROVIDE THE UNIT OF MEASURE OF THE ANSWER (S, EUROS, ETC. FAILURE TO DO SO WILL RESULTINADEDUCTION OF POINTS. 6 POINTS POSSIBLE An American company has a 100,000 Mexican peso receivable. The company has purchased a currency put option to hedge the receivable. The premium is S.02 and the exercise price is S.80. The spot rate of the peso at the time that the option matures is S.87. A. Will the company exercise the option, assuming it acts in a normal profit-seeking manner? B. What will be the net amount that the company receives or pays out depending on whether it exercises the option?Explanation / Answer
Assumed 1 mexican peso = 0.8 american $ As the option price will be denominated in the domestic currency i.e american $ and the underlying variable i.e mexican currency in this case is other than domestic currency Exercise price Future spot price Option type Position Action Premium paid Net pay off 0.8 0.87 put out of the money Lapse 0.02 0.87 - 0.02 = 0.85 Answer to A) The company will not exercise the option
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