5. A U.S. firm expects a receivable (cash inflow) of €1,000,000 in six months. The current exchange rate is $1.125/€. Firm wants to sell euros in six months (to convert the inflow into dollars). Consider 3 possible spot prices in six months. 1. $1.195/€ 2. $1.100/€ 3. $1.025/€ What kind of option, put or call, is appropriate to hedge with? In each scenario, what is the total amount of the firm's NET receivable? NET receivable implies you should consider the receivable as well as the hedging costs of buying the option. (Assume an option exercise price of $1.130/€ and option premium of $.016/€) |
5. A U.S. firm expects a receivable (cash inflow) of €1,000,000 in six months. The current exchange rate is $1.125/€. Firm wants to sell euros in six months (to convert the inflow into dollars). Consider 3 possible spot prices in six months. 1. $1.195/€ 2. $1.100/€ 3. $1.025/€ What kind of option, put or call, is appropriate to hedge with? In each scenario, what is the total amount of the firm's NET receivable? NET receivable implies you should consider the receivable as well as the hedging costs of buying the option. (Assume an option exercise price of $1.130/€ and option premium of $.016/€) |
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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5. A U.S. firm expects a receivable (
Transcribed Image Text:5. A U.S. firm expects a receivable (cash inflow) of €1,000,000 in six months. The current
exchange rate is $1.125/€. Firm wants to sell euros in six months (to convert the inflow
into dollars). Consider 3 possible spot prices in six months.
1. $1.195/€
2. $1.100/€
3. $1.025/€
.
What kind of option, put or call, is appropriate to hedge with?
In each scenario, what is the total amount of the firm's NET receivable? NET
receivable implies you should consider the receivable as well as the hedging
costs of buying the option.
(Assume an option exercise price of $1.130/€ and option premium of $.016/€) |
1.
2.
3.
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