Your firm purchased an equipment from a British company. Total cost was £50,000 (in 30 days). The pound is expected to appreciate against $ substantially in 30 days. Let's suppose it would be $1.6/£ in 30 days. Questions: 1. You decide to use option to hedge against the exchange rate risk. What would be your maximum (or minimum) strike price if it is possible for you to find that strike price? 2. After you bought the option, the spot exchange rate in 30 days turns out to be lower than the strike price. What would you do and what do you need to do?

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Q: You expect that the rate of inflation next year in Australia will be 3% and in the United States…

A:

Q: You purchased a put option on British pounds for RM0.06 per unit. The strike price was RM5.60 and…

A: The question is related to speculating with currency put option.

Q: In a market with an unchanged current exchange rate where the interest parity condition​ holds, if…

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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.