In June 2016, the spot exchange rate for the British Pound was USD 1.4255 / GBP. Suppose that at the same time Malacantra Restaurants, Inc. (MRI) entered into a contract to purchase goods with a price of GBP 400,000 to be delivered in one year. There is a one-year option call contract available to MRI which will allow the company to purchase GBP 10,000 for USD 1.50 / GBP. If MRI purchases 40 option contracts, and the spot rate at the time the contract is due is USD 1.8725 / GBP, how much will MRI pay for the goods?

a)      USD 570,200.00
b)      USD 266,666.70
c)      USD 600,000.00
d)      USD 749,000.00

Answer rating: 100% (QA)

Spot Rate 14255 USDGBP 1 year forward Rate 15 USDGBP Cost of Purchase of goods 400000 GBP Spot Ra... View the full answer