Your small US multinational business forecasts 25,000 Euro expenses to be paid in 6 months. You hedge 100% of the expenses using a call option with the strike price set at the EUR forward rate of 1.30. (The premium cost of the option is assumed to be $0 for this question). If the actual EUR foreign exchange rate in 6 months is 1.10, then what is the US dollar gain or loss on your hedged exposure?
Your small US multinational business forecasts 25,000 Euro expenses to be paid in 6 months. You hedge 100% of the expenses using a call option with the strike price set at the EUR forward rate of 1.30. (The premium cost of the option is assumed to be $0 for this question). If the actual EUR foreign exchange rate in 6 months is 1.10, then what is the US dollar gain or loss on your hedged exposure?
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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