You have sold a put option on British pound and receive $0.03 per pound. The exercise price is $0.75 per British pound and at expiration the exchange rate was 1.5 British pound per dollar. Compute the net profit if the size of contract is 31,250. a. Net loss $1,666.67 b. Net profit $1,666.67 c. Net profit $0 d. Net loss $3,541.67

You have sold a put option on British pound and receive $0.03 per pound. The exercise price is $0.75 per British pound and at expiration the exchange rate was 1.5 British pound per dollar. Compute the net profit if the size of contract is 31,250. a. Net loss $1,666.67 b. Net profit $1,666.67 c. Net profit $0 d. Net loss $3,541.67

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter27: Multinational Financial Management

Section: Chapter Questions

Problem 7MC

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Concept explainers

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.

Question

You have sold a put option on British pound and receive $0.03 per pound. The exercise price is
$0.75 per British pound and at expiration the exchange rate was 1.5 British pound per dollar.
Compute the net profit if the size of contract is 31,250.
a. Net loss $1,666.67
b. Net profit $1,666.67
c. Net profit $o
d. Net loss $3,541.67

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