Fannie Corporation would like to use options to hedge a 24,432,000 Philippine Peso payable. Both call...

 

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Fannie Corporation would like to use options to hedge a 24,432,000 Philippine Peso payable. Both call options and put options have the premium of $0.005 (per unit of Philippine Peso) and the exercise price $0.020 per Philippine Peso. The option will not be exercised until the expiration date, if at all. Should Fannie Corporation buy call options on Philippine Peso or buy put options on Philippine Peso? If the spot rate at the time of maturity is $0.022 per Philippine Peso, what is the total amount paid by the corporation if it acts rationally (after accounting for the premium paid)? Fannie Corporation would like to use options to hedge a 24,432,000 Philippine Peso payable. Both call options and put options have the premium of $0.005 (per unit of Philippine Peso) and the exercise price $0.020 per Philippine Peso. The option will not be exercised until the expiration date, if at all. Should Fannie Corporation buy call options on Philippine Peso or buy put options on Philippine Peso? If the spot rate at the time of maturity is $0.022 per Philippine Peso, what is the total amount paid by the corporation if it acts rationally (after accounting for the premium paid)?

Answer rating: 100% (QA)

To hedge a payable in Philippine Peso PHP Fannie Corporation needs to decide between buying call opt... View the full answer