Question
A French exporter to UK has 90-day USD receivable. He purchases a put option on 2,50,000 at a strike of EUR 1.6500 per at a
A French exporter to UK has 90-day USD receivable. He purchases a put option on 2,50,000 at a strike of EUR 1.6500 per at a premium of EUR 0.02 per pound. The current spot rate is GBP/EUR 1.6710 and the 90-day forward is 1.6550. The interest opportunity cost for the firm is 5% p.a.
(a) Calculate the maximum GBP/EUR rate at the end of 90 days below which the firm will make a net gain from the put
(b) Calculate the range of maturity spots over which the option would be better than the for-ward and vice versa.
DO NOT COPY FROM CHEEG I NEED A FULL EXPLANATION.
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