Question
A U.S. company, I Hate School, wants to use an option to hedge 12.5 million NZD (New Zealand dollars) in receivables from New Zealand firms.
A U.S. company, "I Hate School", wants to use an option to hedge 12.5 million NZD (New Zealand dollars) in receivables from New Zealand firms.
What type of option (put or call on NZD) does "I Hate School" need to buy? The premium on the option is $.03 (meaning, in long hand, that the option premium is 0.03 USD per NZD). The exercise price is $.55 (meaning, in long hand, that the exercise price is 0.55 USD per NZD).
If the option is exercised, what is the total (net) amount of U.S. dollars received (after accounting for the premium paid) by Grizzly Bear Inc? Answer by selecting the best choice.
A. Call option; the total (net) amount of U.S. dollars received = $6,250,000. B. Put option; the total (net) amount of U.S. dollars received = $6,875,000. C. Put option; the total (net) amount of U.S. dollars received = $7,250,000. D. Put option; the total (net) amount of U.S. dollars received = $7,000,000. E. Put option; the total (net) amount of U.S. dollars received = $6,500,000. F. Put option; the total (net) amount of U.S. dollars received = $6,250,000.
G. Call option; the total (net) amount of U.S. dollars received = $6,875,000. H. Call option; the total (net) amount of U.S. dollars received = $7,250,000. I. Call option; the total (net) amount of U.S. dollars received = $7,000,000. J. Call option; the total (net) amount of U.S. dollars received = $6,500,000. K. None of the above
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