Question: Question 1: Using the following information please to answer the question below. You are reviewing your clients (Based in United Kingdom) hedging strategy for the

Question 1:

Using the following information please to answer the question below.

You are reviewing your clients (Based in United Kingdom) hedging strategy for the cash flows it expects to obtain from sales in the US during the calendar year 2019.

Revenue: $90,000

Cost of sales: 54,000 (Expenses are billed in GBP)

Exchange Rate Bid Ask

Spot rate (Scenario 1) Bid: $1.45/ Ask: $1.465/

Spot rate (Scenario 2) Bid:$0.88/ Ask: $0.9/

Options contact:

Option Premium 0.025

Option Strike price 0.922

What are your client's profits if you hedged using options contracts in scenario 1 and 2 compared to not hedging?

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