Suppose the first example of a call option on 62,500 euro and the first example of a put option on 65,000 pounds are available:

Jesen Inc. is going to pay 125,000 euros in 3 months and uses the currency option to hedge exchange rate risk. Which option contract and how many contracts should Jense buy? If the spot rate of euros is $1.54 in three months, how many dollars will Jesen need to pay the 125,000 euros? Why?

Jill Inc. is going to receive 325,000 pounds in one month and uses the currency option to hedge exchange rate risk. Which option contract and how many contracts should Jill buy? If the spot rate of pounds is $1.95 in one month, how many dollars will Jill receive? Why?

Answer rating: 100% (QA)

For Jesen Inc since they need to pay euros in three months they should buy a call option on euros Ba... View the full answer