Chapter 11 Assignment Suppose that Goodwin Co, a U.S. based MNC, knows that it will receive 100,000 pounds in one year. It is considering a currency put option to hedge this receivable. Currency put options on the pound with expiration dates in one year currently have an exercise price of $1.20 and a premium of $0.02. Goodwin Co. wishes to use its own forecast of what the spot rate might be for the pound one year from now $1.17, with 30.00% probability $1.22, with 60.00% probability $1.25, with 10.00% probability For each scenario in the following table, fill in the dollar amount received per unit for the put options (5th column), the total dollar amount received for 100,000 pounds when using the put options (6th column), and whether Goodwin would exercise the options (7th column) Scenario 1 2 3 Pound Spot Rate in 1 Year $1.17 $1.22 $1.25 Option Premium $0.02 $0.02 10.02 Amount Received Per Unit of Put Options $1.20 $1.22 $1.25 Total Cost of Owning Options, With Premium $ Dollar Amount Paid for 100,000 Pounds when Owning Put Options Exercise Options? Yes
Chapter 11 Assignment Suppose that Goodwin Co, a U.S. based MNC, knows that it will receive 100,000 pounds in one year. It is considering a currency put option to hedge this receivable. Currency put options on the pound with expiration dates in one year currently have an exercise price of $1.20 and a premium of $0.02. Goodwin Co. wishes to use its own forecast of what the spot rate might be for the pound one year from now $1.17, with 30.00% probability $1.22, with 60.00% probability $1.25, with 10.00% probability For each scenario in the following table, fill in the dollar amount received per unit for the put options (5th column), the total dollar amount received for 100,000 pounds when using the put options (6th column), and whether Goodwin would exercise the options (7th column) Scenario 1 2 3 Pound Spot Rate in 1 Year $1.17 $1.22 $1.25 Option Premium $0.02 $0.02 10.02 Amount Received Per Unit of Put Options $1.20 $1.22 $1.25 Total Cost of Owning Options, With Premium $ Dollar Amount Paid for 100,000 Pounds when Owning Put Options Exercise Options? Yes
Chapter14: Multinational Capital Budgeting
Section: Chapter Questions
Problem 30QA
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