Shell, a UK oil company plans to sell oil to its US partner. They agree on 24th
Question:
Shell, a UK oil company plans to sell oil to its US partner.
They agree on 24th of May 2018 that the payment of $500,000 for the sold oil will reach Shell on 23rd of July 2018.
The payment is in USD and on the 24th of May 2018 Shell does not know at which exchange rate they will be able to exchange the US dollar payment into British pound on July 23rd, 2018.
Shell fears the US dollar might depreciate over the nearest future and they decide to hedge against this possibility.
One possibility to hedge against the US dollar depreciation is to buy a European put option with a strike price of 0.76GBP/USD, exercise time on July 24, 2018 and size of 125,000USD.
In excel, i need to make a relevant table with the option payoff based on the future exchange rates of between 0.70 and 0.90GBP/USD. i need also prepare an option payoff profile for Shell