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1 . Suppose CM Capital is negotiating a financing deal with a hot startup firm. If the negotiation is successful, which will be known in
Suppose CM Capital is negotiating a financing deal with a hot startup firm. If the negotiation is successful, which will be known in three months, the venture capitalist is going to commit CNY as the first installment. To hedge the contingent exposure, the venture capitalist plans to buy options on Chinese yuan. a What type of option should CM Capital buy, Call or Put? Why? b Suppose the strike price of the option is $; the call option premium is $ per yuan; the put option premium is per yuan. What will CM Capital do in the following four scenarios and whats the payoffpayment in dollars in each scenario? Negotiation is successful and spot rate is $ Negotiation is successful and spot rate is $ Negotiation fails and spot rate is $ Negotiation fails and spot rate is $
Suppose CM Capital is negotiating a financing deal with a hot startup firm. If the negotiation is successful, which will be known in three months, the venture capitalist is going to commit CNY as the first installment. To hedge the contingent exposure, the venture capitalist plans to buy options on Chinese yuan.
a What type of option should CM Capital buy, Call or Put? Why?
b Suppose the strike price of the option is $; the call option premium is $ per yuan; the put option premium is per yuan. What will CM Capital do in the following four scenarios and whats the payoffpayment in dollars in each scenario?
Negotiation is successful and spot rate is $
Negotiation is successful and spot rate is $
Negotiation fails and spot rate is $
Negotiation fails and spot rate is $
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