Problem : It is March 16, 2020. You work as an analyst for Weyland-Yutani Corp. Peter Weyland,
Question:
Problem: It is March 16, 2020. You work as an analyst for Weyland-Yutani Corp. Peter Weyland, the CEO, has ordered robotic equipment from Great Britainat a cost of 23,000,000 to help in the production of the prototype of the Weyland-Yutani Conestoga-class troop transport. The payment of 23,000,000 is due in pounds sterling, one year from now on March 16, 2021.
You call the Bank of New York Mellon and ask for one year 1.3125$/ strike call option to buy 23,000,000. BNYM quotes the following one year offer price for you to buy the option:
One year call option on Pound(exercise price) = 1.3125$/
Percentage of $ amountat exercise price = 5.67%
The question: Evaluate the overall hedged results of this strategy (total $ cost) if the actual spot rate $/ turns out to be 1.15, 1.20, 1.25, 1.30, 1.35, 1.40, 1.45, and 1.50 in different scenarios, noting in what scenarios (spot rates) the option is exercised or not, and which exchange rate scenario of the above works out best for Weyland-Yutaniif they hedged with the call option. Also indicate the premium and the break-even point