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A U.S. firm has sold an Italian firm 1,000,000 worth of product. In one year the U.S. firm gets paid. To hedge, the U.S. firm
A U.S. firm has sold an Italian firm 1,000,000 worth of product. In one year the U.S. firm gets paid. To hedge, the U.S. firm bought put options on the euro with a strike price of $1.65 per euro. They paid an option premium $0.01 per euro and the interest rate on the U.S. dollar is 5% per year. If at maturity the exchange rate is $1.70, the total proceeds to the firm are:
$1,700,000 | ||
$1,690,000 | ||
$1,689,500 | ||
None of the answers is correct. |
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