Consider the investor in question 1. Suppose that when the original investment was made, the investor obtained
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Consider the investor in question 1. Suppose that when the original investment was made, the investor obtained a six-month put option with a strike price $1.28 per €. The premium is $.0138 per €. The hedge is for €65,000.
Calculate the value of the portfolio after six months has gone by for the
following spot exchange rates.
(a) The spot exchange rate is $1.38 per €.
(b) The spot exchange rate is $1.32 per €.
(c) The spot exchange rate is $1.28 per €.
(d) The spot exchange rate is $1.24 per €.
(e) Briefly explain the key idea illustrated by the example.
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