GTC imported 8 luxury buses from France costing EUR 50,000 each. As per the terms the payment
Question:
GTC imported 8 luxury buses from France costing EUR 50,000 each. As per the terms the payment has to be made on 30th August 2021.The Company expects that the EURO may appreciate and wants to protect against exchange risk.
a. Explain how the GTC can protect against the risk of fluctuation in exchange rate though a derivative contract. (1 Mark)
b. Assume that GTC enters into an option contract at a strike price of 2.8642 EUR/OMR with 1% premium.
i. Determine the type of option and the position taken by GTC in Forex market ( 1 Mark)
ii Calculate the option value and open market value and advice whether GTC should exercise the option or not on the date of maturity if the spot rate on the date of maturity is 2.8896 EUR/OMR.( 1.5 marks)
Determine the Gain /loss if the option is exercised ( 0.5 mark)
Expert Answer:
Number of buses imported 8 Cost of bus Euro 50000 each The total amounted to be paid by GTC for the buses on 30th August 850000 Euro 400000 a A deriva... View the full answer
