Suppose a Japanese company, Matsushita, has to sell Can$ 50 m sometime during the next 6 months, and would like tolock in a minimum ¥ value. The price of a put option with a strike price of K = ¥ 230/$ is ¥ 4/$What is the actual amount that they receive if the spot rate at the end of 3 months is 245/$?Since ST >K, the options areworthless and Matsushita can do better by selling at the market rate of ¥ 245/$, rather than the exercise price of ¥ 230/$.Thus, their total receipts will beCV234/$C¥230 / $C¥241/$C¥4/$

Put options is derivative product that gives the option to sell the currency at the given rate but…

Answered: Suppose a Japanese company, Matsushita,…

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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Due to high uncertainty in markets, the only quotes that are available for interest rates are 1-month quotes, that is, interest rates for one-month horizons. The monthly interest rates in the USA and Britain are, respectively, 1% and 1.5%. You seek to purchase the British Pound one-year, that is, 12-month forward. Given that the spot rate for the British Pound today is, $1.48 per pound, assuming satisfaction of Interest Rate Parity, what do you expect the forward quote for the delivery, in one year, of British Pounds to be?
Tyson Inc. has an account payable in Swedish krona due in 60 days. Which would be an appropriate hedge? Question 9 options: Enter into a forward contract to sell Swedish krona in two months Borrow Swedish krona for 60 days for the purpose of a money market hedge Buy a put option on the Swedish krona, expiring in 60 days Buy a call option on the Swedish krona, expiring in 60 days
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