A Canadian company is looking to reduce foreign exchange rate exposures. Available in the market is...

Transcribed Image Text:

A Canadian company is looking to reduce foreign exchange rate exposures. Available in the market is a call option for euro with an exercise price of $1.55 with a premium of $.03 and a 180-day expiration date. A euro put option is also available, with an exercise price of $1.58 with a premium of $.02 and a 180-day expiration date. The current spot rate is $$1.57, the spot rate is expected to be $1.59 in 180 days, and the forward rate is $ 1.59. A. Calculate how much money the company will receive for its 400,000 euros using a forward contract to hedge its receivables B. Calculate how much the company will receive for it 400,000 euros using an option contract? Which is beneficial for the company? A Canadian company is looking to reduce foreign exchange rate exposures. Available in the market is a call option for euro with an exercise price of $1.55 with a premium of $.03 and a 180-day expiration date. A euro put option is also available, with an exercise price of $1.58 with a premium of $.02 and a 180-day expiration date. The current spot rate is $$1.57, the spot rate is expected to be $1.59 in 180 days, and the forward rate is $ 1.59. A. Calculate how much money the company will receive for its 400,000 euros using a forward contract to hedge its receivables B. Calculate how much the company will receive for it 400,000 euros using an option contract? Which is beneficial for the company?

Answer rating: 100% (QA)

A To calculate the amount the company will receive for its 400000 euros using a forward contract we ... View the full answer