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A U.S. company wants to use a currency put option to hedge 10 million Danish Krone (DKR) in accounts receivable due in six months. The
A U.S. company wants to use a currency put option to hedge 10 million Danish Krone (DKR) in accounts receivable due in six months. The premium of the currency put option with a strike price of $0.1333 per DKR is $0.01. The spot rate at the expiration is DKR7.20 per USD. The cost of capital for the company is 10%.
What would be the net amount USDs received by the company in exchange for the DKR 10 million if the time value of the option premium is incorporated?
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