Suppose a German importer owes an Australian exporting company 150,000 AUD, due in three months. S_0 (EUR/AUD) 0.60 Se (EUR/AUD) 0.50 (0.3) and 0.65 (0.7) Premium on AUD call option R = EUR0.02 Exercise exchange rate E = 0.62 Time to expiry 3 months What is the expected value of payables in AUD under hedge Will the option to hedge be undertaken on the basis of expected spot rate
Suppose a German importer owes an Australian exporting company 150,000 AUD, due in three months. S_0 (EUR/AUD) 0.60 Se (EUR/AUD) 0.50 (0.3) and 0.65 (0.7) Premium on AUD call option R = EUR0.02 Exercise exchange rate E = 0.62 Time to expiry 3 months What is the expected value of payables in AUD under hedge Will the option to hedge be undertaken on the basis of expected spot rate
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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Suppose a German importer owes an Australian exporting company 150,000 AUD, due in three months.
S_0 (EUR/AUD) |
0.60 |
Se (EUR/AUD) |
0.50 (0.3) and 0.65 (0.7) |
Premium on AUD call option |
R = EUR0.02 |
Exercise exchange rate |
E = 0.62 |
Time to expiry |
3 months |
- What is the expected value of payables in AUD under hedge
- Will the option to hedge be undertaken on the basis of expected spot rate? Explain.
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