Your company will receive 1 million euros in one year. You want to hedge the exchange rate

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Your company will receive 1 million euros in one year. You want to hedge the exchange rate risk. You collected the following data:

Spot exchange rate: 1.3 USD/EUR

Price of a put on the Euro with strike price 1.3 USD/EUR: 0.06 USD

Price of a call on the Euro with strike price 1.3 USD/EUR: 0.05 USD

Size of options contracts: 1 EUR

U.S. interest rate: 1 percent APR

Euro interest rate: 2 percent APR

What is the future value in one year of the cost of the options necessary to hedge the exchange rate risk (number of options x price x (1 + USD interest rate))?

Related Book For answer-question

International financial management

ISBN: 978-1133947837

12th edition

Authors: Jeff Madura

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Posted Date: Jan 05, 2023 04:45 AM

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Your company will receive 1 million euros in one year. You want to hedge the exchange rate

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The future value in one year of the cost of the options necessa... View the full answer

International financial management

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