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A Japanese firm, which exports to the U . S . , has an account receivable of US$ 5 million in 9 0 days. The
A Japanese firm, which exports to the US has an account receivable of US$million in
days. The current todays spot rate is US$ and the firm is worried that the value of
US$ would fall. The firm has asked you to hedge a minimum value of US$ received, so you
get an at the money put option on US$ with a premium of per US$
Note: Show your work and keep you answers to decimal points if necessary.
a If the day spotUS$ exchange rate were how much would the firm receive in
total? points
b For what ranges of the US$ spot exchange rates in days, would the firm exercise the
option contract? points
c What is the minimum value per US$ would the firm receive in days? points
d For what range of the US$ spot exchange rates in days, would the loss in the value
of the firms hedged position be greater than that of the open position? points
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