An American importer needs to pay 250,000 in 90 days and would like to use currency options

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An American importer needs to pay £250,000 in 90 days and would like to use currency options to hedge the risk of appreciation of the pound. Should the importer buy a call or a put option on pound? Suppose an option on £250,000 maturing in 90 days has a strike price of $1.60/£, and the spot rate in 90 days turns out to be $1.55/£. Should the importer exercise the option if it has bought the option contract? How many dollars does the firm have to pay in 90 days?

Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity.
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Financial Institutions, Markets And Money

ISBN: 1704

12th Edition

Authors: David S. Kidwell, David W. Blackwell, David A. Whidbee, Richard W. Sias

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