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Q1. Suppose a Bangladeshi e $15 million sometime in the ne American importer. To hedge buys an option on the USS. T

Q1. Suppose a Bangladeshi e $15 million sometime in the ne American importer. To hedge buys an option on the USS. T

Essentials Of Investments
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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Q1. Suppose a Bangladeshi exporter is expecting to receive $15 million sometime in the next three months from an American importer. To hedge this, the Bangladeshi exporter buys an option on the USS. The premium is 0.55 BDT/USS, for options with Exercise price = 0.551 a) What option should he buy? b) What is the cost incurred today by the Bangladeshi exporter? c) ) What is the price floor that the exporter has set on the price of US$ 84.5 BDT/USS.? d) What is the actual amount that the exporter will receive if the spot rate at the end of three months is 85.5 BDT/USS? e) What is the actual amount that the BD exporter will receive if the spot rate at the end of three months is 84.5 BDT/USS? Q2. Suppose a Bangladeshi importer is expecting to pay $15 million sometime in the next three months to an American exporter. To hedge this, the Bangladeshi importer buys an option on the US$. The premium is 0.75 BDT/US$, for options with Exercise price = 86.5 BDT/US$. a) What option should he buy? b) What is the cost incurred today by the Bangladeshi importer? c) What is the ceiling that the importer has set on the price of US$? d) What is the actual amount that the importer will pay if the spot rate at the end of three months is 87.75 BDT/US$? Draw a diagram to show your answer.
Transcribed Image Text:Q1. Suppose a Bangladeshi exporter is expecting to receive $15 million sometime in the next three months from an American importer. To hedge this, the Bangladeshi exporter buys an option on the USS. The premium is 0.55 BDT/USS, for options with Exercise price = 0.551 a) What option should he buy? b) What is the cost incurred today by the Bangladeshi exporter? c) ) What is the price floor that the exporter has set on the price of US$ 84.5 BDT/USS.? d) What is the actual amount that the exporter will receive if the spot rate at the end of three months is 85.5 BDT/USS? e) What is the actual amount that the BD exporter will receive if the spot rate at the end of three months is 84.5 BDT/USS? Q2. Suppose a Bangladeshi importer is expecting to pay $15 million sometime in the next three months to an American exporter. To hedge this, the Bangladeshi importer buys an option on the US$. The premium is 0.75 BDT/US$, for options with Exercise price = 86.5 BDT/US$. a) What option should he buy? b) What is the cost incurred today by the Bangladeshi importer? c) What is the ceiling that the importer has set on the price of US$? d) What is the actual amount that the importer will pay if the spot rate at the end of three months is 87.75 BDT/US$? Draw a diagram to show your answer.
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