Pandora corporation (a U.S. based multinational corporation) would like to use currency options to hedge a...

Transcribed Image Text:

Pandora corporation (a U.S. based multinational corporation) would like to use currency options to hedge a 66,500 euro payable due on December 15th, 2020. Both currency put options and call options have the premium of $.05 (per unit of euro) and the exercise price of $1.55 per euro. If the spot rate at the time of maturity (i.e., on December 15th, 2020) is $1.56 per euro, what is the total amount paid by the Pandora corporation if it acts rationally (after accounting for the premium paid) when it uses appropriate currencty options identified in the first question to hedge the payable? Pandora corporation (a U.S. based multinational corporation) would like to use currency options to hedge a 66,500 euro payable due on December 15th, 2020. Both currency put options and call options have the premium of $.05 (per unit of euro) and the exercise price of $1.55 per euro. If the spot rate at the time of maturity (i.e., on December 15th, 2020) is $1.56 per euro, what is the total amount paid by the Pandora corporation if it acts rationally (after accounting for the premium paid) when it uses appropriate currencty options identified in the first question to hedge the payable?

Answer rating: 100% (QA)

To hedge the euro payable Pandora Corporation would purchase currency put options with an exercis... View the full answer