Question: In order to make a connection with the current environment of the international derivatives markets, we have the following activity: Mack Industries Mack Industries is

In order to make a connection with the current environment of the international derivatives markets, we have the following activity:

Mack Industries Mack Industries is a United States (US) based company with global operations. One of your clients is based in the United Kingdom (UK). In his most recent transaction, Mack made a sale for a total of 1,175,000. The client paid 10% as a down payment on January 15, 2016. The rest is expected to be received on April 14.

On the first date, the spot rate is 1.442710 GBP / USD *. Mack is concerned about the possibility of the dollar appreciating, since that situation would result in lower dollar earnings.

PART 2

Obviously, one of the possible decisions is to take no action, which leaves Mack exposed to currency fluctuations.

Another possibility for Mack is to go to the options market. As of January 15, European-style call options with a three-month maturity are trading at 0.0212 and 0.0185 USD for strikes of 1.4400 and 1.4450 GBP / USD respectively. Three-month European-style put options are trading at 0.0166 and 0.0193 USD for strikes of 1.4400 and 1.4450 GBP / USD respectively. The contract is for 62,500, and delivery is "physical".

How do the options perform?

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