A US firm owes 2,193,797 euros to a French firm in 6 months. The current spot...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
A US firm owes 2,193,797 euros to a French firm in 6 months. The current spot rate is USD1.04 = 1 EUR. The US firm is considering hedging the entire contract with an options hedge. A call option on the euro with a strike price of $1.43/EUR is available for a premium of $0.016 per euro. A put option on the euro with a strike price of $1.12/EUR is available for a premium of $0.059 per euro. Suppose that the American firm purchases the option. Suppose further that the spot price on the EUR is $1.47/EUR on the date that they must pay the French firm. What is the dollar cost to the American firm of the imports? Do not include the option premium in your answer. 87.752 A US firm owes 2,193,797 euros to a French firm in 6 months. The current spot rate is USD1.04 = 1 EUR. The US firm is considering hedging the entire contract with an options hedge. A call option on the euro with a strike price of $1.43/EUR is available for a premium of $0.016 per euro. A put option on the euro with a strike price of $1.12/EUR is available for a premium of $0.059 per euro. Suppose that the American firm purchases the option. Suppose further that the spot price on the EUR is $1.47/EUR on the date that they must pay the French firm. What is the dollar cost to the American firm of the imports? Do not include the option premium in your answer. 87.752
Expert Answer:
Answer rating: 100% (QA)
The amount owed by the American firm is 2193797 euros To calculate the dollar c... View the full answer
Related Book For
Financial Institutions Management A Risk Management Approach
ISBN: 978-0071051590
8th edition
Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders
Posted Date:
Students also viewed these finance questions
-
A currency dealer, Nancy Wood, working for a U.S. bank took a 5,000,000 British pound short position when the exchange rate for the dollar/ was $1.5500. The exchange rate then changed to $1.6100. a....
-
Use the "OUTLINE" and the "MINDMAP" to design a presentation for training others about race-related stress on black children and provided "Evidence-based" solutions based on the references included....
-
KYC's stock price can go up by 15 percent every year, or down by 10 percent. Both outcomes are equally likely. The risk free rate is 5 percent, and the current stock price of KYC is 100. (a) Price a...
-
The National Health Statistics Reports dated Oct. 22, 2008, included the following information on the heights (in.) for non-Hispanic white females: a. Calculate and interpret a confidence interval at...
-
A long straight wire carries a current I0. At distances a and b from it there are two other wires, parallel to the former one, which are interconnected by a resistance R (Fig. 3.87). A connector...
-
For each group below, determine which metal has a thermodynamic tendency to corrode in moist air at pH = 7. Take as a criterion of corrosion a metal ion concentration of at least 10-6 mol dm-3, (a)...
-
Compute the missing amounts (in millions) in the following table. (The balance in retained earnings at year-end 2015 was \($2.2.)\) Comment on the firms performance over the three-year period after...
-
A parallel-plate air capacitor is made by using two plates 16 cm square, spaced 4.7 mm apart. It is connected to a 12-V battery. (a) What is the capacitance? (b) What is the charge on each plate? (c)...
-
If it is true that whenever a manager encounters a particular situation ( such as motivating employees to work harder ) , and a single approach exists ( such as raising pay ) that will lead to the...
-
1. What types of control are important at Dollar General? Why are these important? 2. What technological innovations did Kathleen Guion introduce at Dollar General? How did these innovations support...
-
What are some of the social consequences of the opioid crisis on children and families? Explain
-
Chinas economic miracle rested on its abundance of lowcost unskilled labor. What type of goods would China likely export, given the predictions of the Heckscher-Ohlin theorem? Why? Chinas successful...
-
Why is China trying to keep the value of its currency from rising? What would be the impact on the Chinese economy, Chinese workers, and Chinese consumers if the yuan were to rise in value? Chinas...
-
China faces a cruel problem. The factors that were the foundation for its economic success will no longer work. What should China do? Chinas successful industrialization and remarkable economic...
-
Some experts suggest that China will need to transition from its export-manufacturing based economy to an economy based on domestic consumption and an enhanced service sector. To make this...
-
If you were a representative of the Vietnamese or Bangladeshi government, would you support the efforts of U.S. and European diplomats to pressure China to raise the value of its currency? Why?...
-
Code a method called encrypt to encrypt a String by swapping each pair of its adjacent characters. In the case of Strings with an odd number of characters pad them with a trailing space before...
-
In a nonmagnetic medium, E = 50 cos (10 9 t 8x) a y + 40 sin (10 9 t 8x) a z V/m find the dielectric constant r and the corresponding H.
-
What is a possible reason why the spreads on HLT loans perform differently than do the spreads on junk bonds?
-
What types of insurance products were commercial banks permitted to offer before 1999? How did the Financial Services Modernization Act of 1999 change this? How have nonbanks managed to exploit the...
-
How is selling a credit forward similar to buying a put option?
-
Suppose that we have the data \(\tau_{\mathrm{n}}=\left\{x_{1}, \ldots, x_{n} ight\}\) in \(\mathbb{R}\) and decide to train the two-component Gaussian mixture model \[ g(x \mid...
-
A generalization of both the gamma and inverse-gamma distribution is the generalized inverse-gamma distribution, which has density \[ \begin{equation*} f(s)=\frac{(a / b)^{p / 2}}{2 K_{p}(\sqrt{a...
-
A \(d\)-dimensional normal random vector \(X \sim \mathscr{N}\left(\boldsymbol{\mu}, \sum ight)\) can be defined via an affine transformation, \(\boldsymbol{X}=\boldsymbol{\mu}+\boldsymbol{\Sigma}^{1...
Study smarter with the SolutionInn App