Question
A US company will receive GBP 50 million in six months. The current spot rate is GBP/USD 1.3235 and the current 6-month futures rate is
A US company will receive GBP 50 million in six months. The current spot rate is GBP/USD 1.3235 and the current 6-month futures rate is GBP/USD 1.3175. The company has the choice to hedge using futures or options. The options strike price is GBP/USD 1.3200 and the premium (option price) equals $550,000. Assuming in six months, the spot rate is GBP/USD 1.3180, what instrument should the company have chosen? Justify your answer
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Public Finance
Authors: Harvey S. Rosen
5th Edition
025617329X, 978-0256173291
