Alpha Ltd, a NZ listed company importer, imports products for sale from a number of countries....

Transcribed Image Text:

Alpha Ltd, a NZ listed company importer, imports products for sale from a number of countries. The company has an invoice for US$200,000 in two months' time. To hedge the currency risk, the company buys a call option, which gives it the right to buy US dollar at an agreed exercise price of 0.86. That is, NZ$1 would buy US$0.86 if the call is exercised. The spot rate of exchange at the date of purchase of the goods is 0.90 (that is, NZ$1 buys US$0.90). The call costs NZ$10,000. Calculate the spot rate of exchange at the date of payment to make the overall gain/losses (that is, total gains and losses on both the call option and the payable) equal to zero. Alpha Ltd, a NZ listed company importer, imports products for sale from a number of countries. The company has an invoice for US$200,000 in two months' time. To hedge the currency risk, the company buys a call option, which gives it the right to buy US dollar at an agreed exercise price of 0.86. That is, NZ$1 would buy US$0.86 if the call is exercised. The spot rate of exchange at the date of purchase of the goods is 0.90 (that is, NZ$1 buys US$0.90). The call costs NZ$10,000. Calculate the spot rate of exchange at the date of payment to make the overall gain/losses (that is, total gains and losses on both the call option and the payable) equal to zero.