As a major maker/manufacturer of premium leather hand luggage, you are concerned that leather prices may move beyond their current level of $30/pound when you are ready for production. Therefore, you enter into the appropriate option contract. The strike price is fixed at the current spot price at an options price of $5.00 per option. What is the position you take and your profit or loss, if eight months later, leather is selling at the spot market for $38.50? O long futures, $7.50 short futures, -$4.00 Olong call, $3.50 O long call, -$5.00 O long futures, $5.00

As a major maker/manufacturer of premium leather hand luggage, you are concerned that leather prices may move beyond their current level of $30/pound when you are ready for production. Therefore, you enter into the appropriate option contract. The strike price is fixed at the current spot price at an options price of $5.00 per option. What is the position you take and your profit or loss, if eight months later, leather is selling at the spot market for $38.50? O long futures, $7.50 short futures, -$4.00 Olong call, $3.50 O long call, -$5.00 O long futures, $5.00

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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Concept explainers

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.

Question

As a major maker/manufacturer of premium leather hand luggage, you are concerned that leather prices may move
beyond their current level of $30/pound when you are ready for production. Therefore, you enter into the appropriate
option contract. The strike price is fixed at the current spot price at an options price of $5.00 per option. What is the
position you take and your profit or loss, if eight months later, leather is selling at the spot market for $38.50?
Olong futures, $7.50
Oshort futures, -$4.00
Olong call, $3.50
Olong call, -$5.00
O long futures, $5.00

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