Question
3M Inc. has just signed an agreement to sell Post-It Notes to a Canadian wholesaler for $300,000 CAD. The payment is expected to be received
- 3M Inc. has just signed an agreement to sell Post-It Notes to a Canadian wholesaler for $300,000 CAD. The payment is expected to be received in September, 2006. Show the net amount of USD to be received by 3M and the net effective exchange rate if 3M hedges with options; the following options are available:
call option: strike price 0.7250 USD/CAD, premium 0.0045 USD, September expiration
put option: strike price 0.7250 USD/CAD, premium 0.0052 USD, September expiration
Decide whether you, as 3Ms finance manager, should buy or sell calls and/or puts remembering that you do not know what the September spot rate will be.
- Assume the spot price in September is 0.7385 USD/CAD. Explain how your strategy would work and show relevant numbers.
Assume the spot price in September is 0.6975 USD/CAD. Explain how your strategy would work and show relevant numbers
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Fundamentals Of Investments
Authors: Bradford Jordan, Thomas Miller
4th Edition
0073314978, 9780073314976
