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A US company has bought 30 personal computers from a British company for 62,500 pounds. Its payment must be made in British pounds 90 days
A US company has bought 30 personal computers from a British company for 62,500 pounds. Its payment must be made in British pounds 90 days from now. The premium for a pound call option with a strike price of $1.60 and 90 day expiration date is $0.04per pound. The current spot rate for pounds is $1.58; the US company expects that the spot rate in 90 days will rise to $1.66. The US company has two alternatives: do not hedge and hedge in the options market. Should the US company, choose the call option hedge or no hedge?
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