ANZ Ltd. expects to receive royalty payments in Singapore dollars of SGD1.25 million next month. It needs to protect these receipts against a drop in the SGD against the Australian dollar (AUD). The CFO believes that the most likely value of the SGD in 30 days will be AUD1.15, with an expected minimum of AUD1.05 and maximum of AUD1.40. ANZ can buy SGD put options with a strike price of AUD1.20 at a premium of 2.0 cents per SGD. The spot price of the SGD is currently AUD1.50. The option contract size is SGD31,250.

a. How many contracts would ANZ need to protect its receipts? What would be the total premium?

b. If the SGD settled at its most likely value, would the CFO exercise the option? Explain.

c. Calculate ANZ’s net position on this option if the most likely value occurred.

Answer rating: 100% (QA)

a How many contracts would ANZ need to protect its receipts What would be th... View the full answer