Tetron plc, a UK business, has purchased goods from an Italian supplier. This requires payment of 400,000
Question:
Tetron plc, a UK business, has purchased goods from an Italian supplier. This requires payment of €400,000 in two months’ time. The business intends to take out an option at a strike price of £1 = €1.2226 to hedge the currency risk. A call option costs £0.60 per €100 and a put option cost £0.48 per €100. These options relate to the purchase or sale of euros.
Required:
State whether a put option or a call option would be required to hedge the risk and calculate the maximum amount to be paid if the spot rate in two months’ time is £1 = €1.2042.
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Tetron plc In order to buy euros a call option is r...View the full answer
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