Suppose you have a 1,200,000 US dollar payable coming due in June and that the spot today is .98 US/CDN. You get a strike of .98 US and you are dealing with the PHLX. Suppose you are deciding whether or not to hedge out the foreign exchange risk. The size of the Canadian dollar contract on the PHLX is 50,000 Canadian dollars per contract. The option price is listed as 1.00 for the June put on Canadian dollars and .90 on the June call. Suppose you expect the US/CDN to be .97 on the last day of the option (the expiry date). This also happens to be the day you need to cover your payable. How much does it cost you to set up the hedge with brokerage cost set to zero? (In CANADIAN dollars approximately.)

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Question 24 of 30
Suppose you have a 1,200,000 US dollar payable coming due in June and that the spot
today is .98 US/CDN. You get a strike of .98 US and you are dealing with the PHLX.
Suppose you are deciding whether or not to hedge out the foreign exchange risk.
The size of the Canadian dollar contract on the PHLX is 50,000 Canadian dollars per
contract. The option price is listed as 1.00 for the June put on Canadian dollars and .90 on the June call.
Suppose you expect the US/CDN to be .97 on the last day of the option (the expiry date). This also happens to be the day you need to cover your payable.
How much does it cost you to set up the hedge with brokerage cost set to zero? (In CANADIAN dollars approximately.)
O A. 12,000
ов. 12,887
С. 12,755
O D. 12,500
Transcribed Image Text:Question 24 of 30 Suppose you have a 1,200,000 US dollar payable coming due in June and that the spot today is .98 US/CDN. You get a strike of .98 US and you are dealing with the PHLX. Suppose you are deciding whether or not to hedge out the foreign exchange risk. The size of the Canadian dollar contract on the PHLX is 50,000 Canadian dollars per contract. The option price is listed as 1.00 for the June put on Canadian dollars and .90 on the June call. Suppose you expect the US/CDN to be .97 on the last day of the option (the expiry date). This also happens to be the day you need to cover your payable. How much does it cost you to set up the hedge with brokerage cost set to zero? (In CANADIAN dollars approximately.) O A. 12,000 ов. 12,887 С. 12,755 O D. 12,500
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