The USDJPY spot price is 115.018 and the one month forward is 115.046. A one month expiration European style call option with a strike price of 115.046 is trading at 4¥ and a put option with the same parameters is trading at 5¥. If we purchase the call and sell the put sketch the payoff of this position at expiry over the range 114.900 to 115.140. If we were going to hedge an exposure to the Yen should we use the option position or the forward?

Answer rating: 100% (QA)

In buying a 1 month forward we have a positive payoff from 115046 In Option position we hav... View the full answer