Space-X Corporation, located in the United States, has an accounts payable obligation of $750 million payable in one year to Mitsubishi Electric of Japan. The current spot rate is 116/S and the one year forward rate currently is ¥115/S. However, it is expected that the actual spot rate one year from now could be 118/S. The annual interest rate is 3 percent in Japan and 6 percent in the United States. One-year Call Options on (one Option round-lot #1,000,000) with a Strike/Exercise Price of $0.0086% are currently trading at the Philadelphia Stock Exchange (PHLX) for a premium of 0.012 cents. The Hedge Ratio that is required for a perfect hedging strategy is: A. 0.50 B.0.75 OC. 0.83 OD.0.14
Space-X Corporation, located in the United States, has an accounts payable obligation of $750 million payable in one year to Mitsubishi Electric of Japan. The current spot rate is 116/S and the one year forward rate currently is ¥115/S. However, it is expected that the actual spot rate one year from now could be 118/S. The annual interest rate is 3 percent in Japan and 6 percent in the United States. One-year Call Options on (one Option round-lot #1,000,000) with a Strike/Exercise Price of $0.0086% are currently trading at the Philadelphia Stock Exchange (PHLX) for a premium of 0.012 cents. The Hedge Ratio that is required for a perfect hedging strategy is: A. 0.50 B.0.75 OC. 0.83 OD.0.14
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Space-X Corporation, located in the United States, has an accounts payable obligation of $750 million payable in one year to Mitsubishi Electric of
Japan. The current spot rate is 116/S and the one year forward rate currently is ¥115/S. However, it is expected that the actual spot rate one year
from now could be 118/S. The annual interest rate is 3 percent in Japan and 6 percent in the United States. One-year Call Options on (one Option
round-lot 1,000,000) with a Strike/Exercise Price of $0.0086% are currently trading at the Philadelphia Stock Exchange (PHLX) for a premium of
0.012 cents/
The Hedge Ratio that is required for a perfect hedging strategy is:
A. 0.50
B. 0.75
OC 0.83
OD.0.14
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