An Australian company imports goods from Germany and expects the payment of EUR 250,000 after 60 days. Therefore, the company purchased a Call option with a strike price of AUD 1.25/EUR and a premium of 5% of the option value. At the maturity of the option, the market price is AUD/EUR=0.85. Specify the decision of the Australian company. O a. To not hedge the risk O b. To purchase the amount in EUR from the market O c To exercise the option O d. To search for another option contract

An Australian company imports goods from Germany and expects the payment of EUR 250,000 after 60 days. Therefore, the company purchased a Call option with a strike price of AUD 1.25/EUR and a premium of 5% of the option value. At the maturity of the option, the market price is AUD/EUR=0.85. Specify the decision of the Australian company. O a. To not hedge the risk O b. To purchase the amount in EUR from the market O c To exercise the option O d. To search for another option contract

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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A U.K importer has future payables of DM 20,000,000 in one year. The importer mustdecide whether to use option or a money market to hedge this position. The followinginformation is availableSpot rate £ 0.74 =DM1One year call optionExercise Price £ 0.76= DM1Premium £ 0.04 per DMOne year Put OptionExercise Price £ 0.77 =DMPremium £ 0.02 per DMSterling Deposit Rate 8% Per AnnumSterling Borrowing Rate 9% Per AnnumDM Deposit Rate 6% Per AnnumDM Borrowing Rate 7% Per AnnumForecast one-spot Rate £ 0.70 £0.77 £0.70Probability 25% 55% 20%Required:Assume that the importer’s objective is to minimize the sterling value of DM payables.Which of the hedging instruments would you recommend? Verify your answer by estimatingthe sterling cost for each type of hedge. Compare cost of hedging and non-hedging
A speculator sells a put option on Canadian dollars (assume contract size 50.000) for a premium of $0.03 per unit, with an exercise price of $0.86. The option will not be exercised until the expiration date, if at all. If the spot rate for the Canadian dollar turns out to be $0.97 on expiration date, the profit (loss) to the seller per contract.is: O $1.500 O $1.500 O $4.000 O-$4,000
H On June 1, Wellmax Co. (a U.S.-based company) sold goods to a foreign customer for 1,040,000 pesos. The customer will pay on September 1. On June 1, Wellmax bought an option (strike price = $0.066) to sell 1,040,000 pesos on September 1. The time value of the option is excluded from the assessment of hedge effectiveness, and the change in time value is recognized in net income over the life of the option. The foreign currency option is designated a fair value hedge. Relevant exchange rates and option premia follow. Spot Rate June 1 $0.066 June 30 0.065 September 1 0.064 What is the net foreign exchange gain or loss Wellmax will recognize on its June 30 income statement? Use a-sign to indicate loss. Date Put Option Premium for September 1 (strike price $0.066) $0.0029 0.0024 N/A
Suppose that you are a speculator that anticipates a depreciation of the Singapore dollar (S$). You purchase a put option contract on Singapore dollars. Each contract represents S$45,000, with a strike price of $0.77 and an option premium of $0.03 per unit. Suppose that the spot price of the Singapore dollar is $0.73 just before the expiration of the put option contract. At this time, you exercise the option, while also purchasing S$45,000 in the spot market at the current spot rate. Assume the seller, after you exercise the put option, immediately sells the S$45,000 on the spot market. Now consider this scenario from the perspective of the individual or firm that sold you the put option. Note: Assume there are no brokerage fees. Use the drop-down selections to fill Transaction Selling Price of S$ - Purchase Price of S$ + Premium Paid for Option = Net Profit the following table from the sellers perspective. Per Unit $0.73 -$0.77 $0.03 Per Contract $32,850 $26,280 $39,420
Suppose that you are a speculator that anticipates a depreciation of the Singapore dollar (S$). You purchase a put option contract on Singapore dollars. Each contract represents S$45,000, with a strike price of $0.77 and an option premium of $0.03 per unit. Suppose that the spot price of the Singapore dollar is $0.73 just before the expiration of the put option contract. At this time, you exercise the option, while also purchasing S$45,000 in the spot market at the current spot rate. Use the drop-down selections to fill in the following table from your (the buyer's) perspective to determine your net profit (on a per contract basis). (Note: Assume there are no brokerage fees.) Note: Assume there are no brokerage fees. Transaction Selling Price of S$ - Purchase Price of S$ - Premium Paid for Option = Net Profit Per Unit $0.77 -$0.73 -$0.03 Per Contract $34,650 $27,720 $31,185
Suppose you have a 1,200,000 US dollar payable coming due in June and that the spottoday 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 percontract. 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.) A. 12,755 B. 12,887 C. 12,000 D. 12,500
On June 1, Wellmax Co. (a U.S.-based company) sold goods to a foreign customer for 1,040,000 pesos. The customer will pay on September 1. On June 1, Wellmax bought an option (strike price = $0.066) to sell 1,040,000 pesos on September 1. The time value of the option is excluded from the assessment of hedge effectiveness, and the change in time value is recognized in net income over the life of the option. The foreign currency option is designated a fair value hedge. Relevant exchange rates and option premia follow. Date June 1 June 30 September 1 What is the fair value of the option contract on June 1? Spot Rate $0.066 0.065 0.064 Put Option Premium for September 1 (strike price $0.066) $0.0029 0.0024 N/A
Suppose that you are a speculator that anticipates an appreciation of the Singapore dollar (S$). You purchase a call option contract on Singapore dollars. Each contract represents S$25,000, with a strike price of $0.86 and call option premium of $0.02 per unit. Suppose that the spot price of the Singapore dollar is $0.92 just before the expiration of the call option contract. At this time, you call the contract and immediately sell the Singapore dollars to a bank at the current spot price. Now consider this scenario from the perspective of the individual or firm that sold you the call option. Note: Assume there are no brokerage fees. Use the drop-down selections to fill in the following table from the sellers perspective. Transaction Selling Price of S$ - Purchase Price of S$ + Premium Paid for Option = Net Profit Per Unit $0.86 -$0.92 $0.02 Per Contract $21,500 $12,900 $27,950
Sysco corporation has purchased currency call options to hedge a 4,320,000 Swedish krona payable. The premium is $0.015 (per unit of Swedish krona) and the exercise price of the option is $0.097 per Swedish krona. If the spot rate at the time of maturity is S0.105 per Swedish krona, what is the total amount paid by the corporation if it acts rationally (after accounting for the premium paid)? Question 27 options: S 419,040. $354,240. $518,400. S453,600. $483,840.
A U.S. corporation has purchased currency put options to hedge a 100,000 Canadian dollar (CAD) receivable. The premium is $0.01 per CAD and the exercise price of the option is $0.75 per CAD. If the spot rate at the time of maturity is $0.85 per CAD, what is the net amount of US dollar received by the corporation if it acts rationally, A) $74,000. B) $84,000. C) $75,000. D) $85,000.
Assume you are a US exporter with an account receivable denominated in Singapore dollars to be paid to you in one year, in the amount of SGD 780,691. The current spot rate is 0.71 USD per SGD. You have decided to hedge using a put option, with an exercise price of 0.71 and a premium of 0.02. What would be the hedged US dollar amount of the receivable if in one year the spot rate is 0.71 USD per SGD? Enter your answer with no decimals.
Suppose that you are a speculator that anticipates an appreciation of the Singapore dollar (S$). You purchase a call option contract on Singapore dollars. Each contract represents S$25,000, with a strike price of $0.86 and call option premium of $0.02 per unit. Suppose that the spot price of the Singapore dollar is $0.92 just before the expiration of the call option contract. At this time, you call the contract and immediately sell the Singapore dollars to a bank at the current spot price. Use the drop-down selections to fill in the following table from your (the buyer's) perspective. Note: Assume there are no brokerage fees. Transaction Selling Price of S$ - Purchase Price of S$ Premium Paid for Option Net Profit = Per Unit $0.92 -$0.86 -$0.02 Per Contract $23,000 $18,400 $13,800

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