A us firm has sold an italian firm 1000000 worth of

This preview shows page 38 - 42 out of 55 pages.

51. A U.S. firm has sold an Italian firm €1,000,000 worth of product. In one year the U.S. firm gets paid. To hedge, the U.S. firm bought put options on the euro with a strike price of $1.65. They paid an option premium $0.01 per euro. If at maturity, the exchange rate is $1.60, A. The firm will realize $1,145,000 on the sale net of the cost of hedging.B. The firm will realize $1,150,000 on the sale net of the cost of hedging.C.The firm will realize $1,140,000 on the sale net of the cost of hedging.D. None of the above
52. Buying a currency option provides
53. Which of the following options strategies are internally consistent?
example, if you sell puts, you hope the price stays the same or goes up; if you buy calls, you hope the price goes up.8-38
Chapter 08 - Management of Transaction Exposure54. A Japanese EXPORTER has a €1,000,000 receivable due in one year.Detail a strategy using options that will eliminate exchange rate risk.
Chapter 08 - Management of Transaction Exposure55. A Japanese EXPORTER has a €1,000,000 receivable due in one year. Estimate the cost today of an options strategy that will eliminate exchange rate risk.A.$20,000.B. $5,000.C. $12,500.D. None of the aboveFirst, get rid of the €1,000,000 with put options on euro. At a strike price of$1.25 = €1.00 this will generate $1,250,000. Next, buy $1,250,000 worth of yen withcall options.8-40
Chapter 08 - Management of Transaction Exposure56. A Japanese IMPORTER has a $1,250,000 PAYABLE due in one year.Detail a strategy using forward contractsthat will hedge his exchange rate risk.

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture