An American company has just purchased merchandise from a British company for £50,000 on 90-day terms. This company has purchased a 3-month call option on 50,000 pounds at an exercise price of $1.7 per pound and a premium cost of $0.02 per pound. On the day the option expires, the spot exchange rate is $1.8 per pound. What will be the value of the pound payable in US dollars if the US company exercises the option?

Answer rating: 100% (QA)

First we need to convert the purchase price of 50000 to US dollars using the spot exchange rate on t... View the full answer