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4.)Option Hedge of Payables. A U.S.-based MNC wishes to make a payment of EUR 10,000 to an affiliate in 30 days. The MNC purchases EUR

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4.)Option Hedge of Payables. A U.S.-based MNC wishes to make a payment of EUR 10,000 to an affiliate in 30 days. The MNC purchases EUR call options maturing in 30 days to mitigate currency risk. The option strike price is USD 1.30 and its premium is USD 0.04. At maturity, assume that EURUSD equals 1.43. a. Are the EUR call options exercised? Estimate the payoff and profit. b. Assuming options are not used, what is the USD payment? c. With options, what is the net USD payment? 5.)Option Hedge of Receivables: A U.S.-based MNC expects to receive GBP 5,000 from an affiliate in 30 days. The MNC purchases GBP put options maturing in 30 days to miti- gate currency risk. The option strike price is USD 1.80, and its premium is USD 0.03. At maturity, assume that GBPUSD 1.66 a. Are the GBP put options exercised? Estimate the payoff and profit. b. Assuming options are not used, what is the USD receipt? c. With options, what is the net USD receipt

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