{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Chapter 7 Apex Example

# Chapter 7 Apex Example - Apex Corporation must pay its...

This preview shows pages 1–2. Sign up to view the full content.

Apex Corporation must pay its Japanese supplier ¥125 million in three months. It is thinking of buying 20 yen call options (contract size is ¥6.25 million) at a strike price of \$0.00800 in order to protect against the risk of a rising yen. The premium is 0.00015 cents per yen. Alternatively, Apex could buy 10 three-month yen futures contracts (contract size is ¥12.5 million) at a price of \$0.007940 per yen. The current spot rate is ¥1 = \$0.007823. Suppose Apex's treasurer believes that the most likely value for the yen in 90 days is \$0.007900, but the yen could go as high as \$0.008400 or as low as \$0.007500. a. Diagram Apex's gains and losses on the call option position and the futures position within its range of expected prices. Ignore transaction costs and margins. Do not ignore the call premium. A NSWER . In all the following calculations, note that the current spot rate is irrelevant. When a spot rate is referred to, it is the spot rate in 90 days. If Apex buys the call options, it must pay a call premium of 0.00015 x 125,000,000 = \$18,750. If the yen settles at its minimum value, Apex will not exercise the option and it loses the call premium.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 3

Chapter 7 Apex Example - Apex Corporation must pay its...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online