3. AMERI-Corp. needs to buy, then pay 6,000,000 Pounds (P) in 270 days ( = 75 yr) to a European firm. AMERI-Corp is worried about exchange rate risk on the future US$ value of this payable and wants to compare a Money Market or Option hedge. Spot rate today is $1.278/P ANNUAL deposit (investing) rate is: Europe = 3.0% ; USA = 4.4% ANNUAL borrowing rate is: Europe = 4.4%; USA = 5.6% A CALL option is available with 270-days to maturity with a strike price of $1.275 / P with a premium of $.025 / P A PUT option is available with 270-days to maturity with a Strike price of $1.28/P with a premium of $.022/P AMERI-Corp forecasted the +270-day future expected Spot Rate as follows: $1.26/P 15% prob. $1.272/P 30% prob. $1.28/P 40% prob. $1.29/P 15% prob. QUES. 3-A-B-C Estimate the amounts that AMERI-Corp can expect by hedging among: $ 3-A 10pts MONEY MARKET hedge equivalent amount 3-B ) ) Money Market Option 3. AMERI-Corp. needs to buy, then pay 6,000,000 Pounds (P) in 270 days ( = 75 yr) to a European firm. AMERI-Corp is worried about exchange rate risk on the future US$ value of this payable and wants to compare a Money Market or Option hedge. Spot rate today is $1.278/P ANNUAL deposit (investing) rate is: Europe = 3.0% ; USA = 4.4% ANNUAL borrowing rate is: Europe = 4.4%; USA = 5.6% A CALL option is available with 270-days to maturity with a strike price of $1.275 / P with a premium of $.025 / P A PUT option is available with 270-days to maturity with a Strike price of $1.28/P with a premium of $.022/P AMERI-Corp forecasted the +270-day future expected Spot Rate as follows: $1.26/P 15% prob. $1.272/P 30% prob. $1.28/P 40% prob. $1.29/P 15% prob. QUES. 3-A-B-C Estimate the amounts that AMERI-Corp can expect by hedging among: $ 3-A 10pts MONEY MARKET hedge equivalent amount 3-B ) ) Money Market Option