Question: 14. Milton Mining is a U.S. multinational that just purchased 1,100,000 of goods on account, due in 1 year from a German supplier. The spot

14. Milton Mining is a U.S. multinational that just purchased 1,100,000 of goods on account, due in 1 year from a German supplier. The spot exchange rate is $1.225/. Milton wants to hedge the account payable with an OTC call option with a strike price of $1.250/ and contract size of 1,100,000. The option premium is $0.006125/. The interest rate for 1 year for EUR area is 2%, while the interest rate for 1 year in USD area is 3%. How much more (less) USD would you pay when using option hedge than no hedge at all when future exchange rate is $1. 50/?

a. -$6,939 b. $5,500 c. $268,060 d. $1,375,000

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