A Barbados importer has a Euro 62,500 payment to make to a German exporter in 60...

 

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A Barbados importer has a Euro 62,500 payment to make to a German exporter in 60 days. The importer is thinking of buying a call option to have the Euro delivered to it at a strike price of BBD 1.28 per Euro at the end of the 60 days in order to protect against the risk of raising Euro. The premium is BBD 0.04 per Euro. a) If at the time the importer's payment falls due, the value of the Euro has risen to BBD 1.40, what is the gain or loss on the call position? [10 Marks] b) If at the time the importer's payment falls due, the value of the Euro has fallen to BBD 1.02, what is the gain or loss on the call position? [5 Marks] A Barbados importer has a Euro 62,500 payment to make to a German exporter in 60 days. The importer is thinking of buying a call option to have the Euro delivered to it at a strike price of BBD 1.28 per Euro at the end of the 60 days in order to protect against the risk of raising Euro. The premium is BBD 0.04 per Euro. a) If at the time the importer's payment falls due, the value of the Euro has risen to BBD 1.40, what is the gain or loss on the call position? [10 Marks] b) If at the time the importer's payment falls due, the value of the Euro has fallen to BBD 1.02, what is the gain or loss on the call position? [5 Marks]

Answer rating: 100% (QA)

a If at the time the importers payment falls due the value of the Euro has risen to BBD 140 we can c... View the full answer