27 Hedging payables with currency options. Malibu, Inc. is a US company that imports British goods. It plans to use call options to hedge payables of

£100 000 in 90 days. Three call options are available that have an expiration date 90 days from now. Fill in the number of dollars needed to pay for the payables

(including the option premium paid) for each option available under each possible scenario.

If each of the five scenarios had an equal probability of occurrence, which option would you choose?
Explain.

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Scenario Spot rate of pound Exercise Exercise Exercise price = price = price = $1.74; $1.76; $1.79; 90 days premium from = $.06 =$.05 premium premium = $.03 now 1 $1.65 2 1.70 3 1.75 4 1.80 5 1.85