pls fill out table Suppose that Goodwin Co., a U.S. based MNC, knows that it will receive 200,000 pounds in one year. It is considering a currency put option to hedgethis receivable. Currency put options on the pound with expiration dates in one year currently have an exercise price of $1.18 and a premium of$0.03.Goodwin Co. wishes to use its own forecast of what the spot rate might be for the pound one year from now.• $1.16, with 20.00% probability•$1.20, with 70.00% probability$1.23, with 10.00% probabilityFor each scenario in the following table, fill in the dollar amount received per unit for the put options (5th column), the total dollar amount received for200,000 pounds when using the put options (6th column), and whether Goodwin would exercise the options (7th column)Pound SpotRate in 1ScenarioYearOptionPremiumAmountReceived PerUnit of PutOptionsTotal Cost of OwningOptions, With PremiumDollar Amount Paid for200,000 Pounds when OwningPut OptionsExerciseOptions?1$1.16$0.03$1.18$2$1.20$0.03$1.20$$3$1.23$0.03$1.23

In this scenario, Goodwin Co. is considering using currency put options to hedge its receivable of…

Answered: Suppose that Goodwin Co., a U.S. based…

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter14: Multinational Capital Budgeting

Section: Chapter Questions

Problem 30QA

See similar textbooks

Similar questions

Suppose that Goodwin Co., a U.S. based MNC, knows that it will receive 200,000 pounds in one year. It is considering a currency put option to hedge this receivable. Currency put options on the pound with expiration dates in one year currently have an exercise price of $1.18 and a premium of $0.03. On the following graph, use the blue points (circle symbols) to plot the contingency graph for hedging this receivable with a put option. Plot the points from left to right in the order you would like them to appear. Line segments will connect automatically. Plot the 3 blue points for the following pound spot rates: $1.15, $1.18, $1.22. Note: The vertical axis measures dollar cash inflows from the hedge, which includes the price received for pounds and any option premium. Dollar Cash Received from Hedge (Dollars per Pound) 1.19 1.18 1.17 1.16 1.15 1.14 1.13 1.12 1.11 1.15 1.16 1.17 1.18 1.19 1.20 1.21 Pound Spot Rate in One Year (Dollars per Pound) Contingency Graph ?
Suppose that Mullen Co, a U.S.-based MNC, knows that it will need 200,000 pounds in one year in order to purchase supplies. It is considering a currency call option to hedge this payable. Currency call options on the pound with expiration dates in one year currently have an exercise price of $1.21 and a premium of $0.02. Mullen Co. wishes to use its own forecast of what the spot rate might be for the pound one year from now. • $1.18, with 30.00% probability • • $1.22, with 60.00% probability • $1.24, with 10.00% probability For each scenario in the following table, fill in the dollar amount paid per unit for the call options (5th column), the total dollar amount paid for 200,000 pounds when using the call options (6th column), and whether Mullen would exercise the options (7th column) Pound Spot Rate in 1 Scenario Year Option Premium Per Unit Cost of Owning Option Total Cost of Owning Options, With Premium Dollar Amount Paid for 200,000 Pounds when Owning Call Options Exercise Options?…
Suppose that Mullen Co, a U.S.-based MNC, knows that it will need 200,000 pounds in one year in order to purchase supplies. It is considering a currency call option to hedge this payable. Currency call options on the pound with expiration dates in one year currently have an exercise price of $1.20 and a premium of $0.04. On the following graph, use the blue points (circle symbols) to plot the contingency graph for hedging this payable with a call option. Plot the points from left to right in the order you would like them to appear. Line segments will connect automatically. Plot the 3 blue points for the following pound spot rates: $1.16, $1.20, $1.26. Note: The vertical axis measures dollar cash outflows from the hedge, which includes the price paid for pounds and any option premium. Dollar Cash Outflows from Hedge (Dollars per Pound) 1.26 1.25 1.24 1.23 1.22 1.21 1.20 1.19 1.18 1.17 1.16 1.15 1.14 + 1.16 1.17 1.18 1.19 1.20 1.21 1.22 1.23 1.24 1.25 Pound Spot Rate in One Year (Dollars…
Suppose that you are the CFO of Google with an extra U.S. $20 Million to invest for one year. You are considering the purchase of U.S. T-bills that yield 4% per year. The spot exchange rate is $1.00 = €0.90, and the one-year forward rate is $1.00 = €0.95 . What must the interest rate in the Eurozone (on an investment of comparable risk) be before you are willing to consider investing there instead of the US? a. 9.78% b. 1.56% c. 4.00% d. 5.56%
Suppose a European call option to buy 1 euro for 1.40 CAD costs 0.08 CAD. The option maturity is in two months and the forward exchange rate for the same maturity is 1.50 CAD per euro. What arbitrage opportunity exists? Explain how you can exploit this opportunity and how much the profit is. (Ignore the time value of money)
A Japanese exporter has a €1,000,000 receivable due in one year. To hedge the position, you will buy put options on euro True or False?
Suppose that the spot price of a Canadian dollar is U.S. $0.89 and that the exchange rate has a volatility of 7% per year. Risk-free interest rates are 6% in the U.S. and 4% in Canada. Calculate the price of a 6-month European call option to buy one Canadian dollar for U.S. $0.89. Express your answer in terms of the cumulative normal distribution function, N(x), as in the answers to question 16 in part 1. What is the price of a 6-month option to buy U.S. $0.89 for one Canadian dollar? Please show all your work! Thank you SO much
A European at-the-money put option on the British pound has 1 year until maturity. The exchange rate volatility is 10%, the U.S. risk-free rate is 1.0%, and the U.K. risk- free rate is 1.5% (all per annum and with continuous compounding). The current exchange rate is $1.30 per pound. What is the value of the put option? (Hint: Use Black-Scholes-Merton valuation for currency options)? O $0.0766 per pound O $0.0388 per pound O $0.0977 per pound O $0.0544 per pound
Using the UIP equation, assume that the expected future rate (after one year) for euros (in terms of dollars) equals $1.20, while the current spot rate is 1.15. The current interest rate on euro deposits is 2%, and the interest rate on dollar deposits is 3%. Should you invest in the US or in Europe? Neither one In the US In Europe It is indifferent
With regard to hedging and forecasting, a Eurozone firm is expecting a receivable of $1 million in six months. Right now at the market the forward rate of six months for the dollar is $1.2 to a euro. Staff presents two forecast: $1.11 and $1.05. Suppose it is known also that the future spot rate in the six months happens to be $1.1. Which of the forecasts should be taken by the firm and why?
The British pound (£) is currently worth 1.45 euros (€). This can either increase by u = 1.1 or decrease by d = 0.9 over each 4 months. Consider a European call option with a strike price of K = 1€ per £ and time-to-maturity T = 8 months. The continuously compounded risk-free rate in Britain is 4% per annum and in Europe is 10% per annum. What is the price of the European call option today? Please explain your answer using your own words and show your workings. In addition, if the option was American-style would the risk-neutral probability of an up-move be smaller than, equal to or greater than the one you have calculated? Explain why using your own words.
The British pound (£) is currently worth 1.45 euros (€). This can either increase by u = 1.1 or decrease by d = 0.9 over each 4 months. Consider a European call option with a strike price of K = 1€ per £ and time-to-maturity T = 8 months. The continuously compounded risk-free rate in Britain is 4% per annum and in Europe is 10% per annum. What is the price of the European call option today? Please explain your answer using your own words and show your workings. In addition, if the option was American-style would the risk-neutral probability of an up-move be smaller than, equal to or greater than the one you have calculated?

SEE MORE QUESTIONS

Recommended textbooks for you

International Financial Management

Finance

ISBN:

9780357130698

Author:

Madura

Publisher:

Cengage

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

International Financial Management

Finance

ISBN:

9780357130698

Author:

Madura

Publisher:

Cengage

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

SEE MORE TEXTBOOKS