Question
A)Eric is purchasing a put option to hedge his transaction exposure. It has an underlying asset of MXN 249,366, a strike price of USD 0.057
A)Eric is purchasing a put option to hedge his transaction exposure. It has an underlying asset of MXN 249,366, a strike price of USD 0.057 per MXN. What is his payoff on this option if at maturity the spot rate is USD 0.044 per MXN, and the present value of the option premium is USD 2,319? Please give your answer to the nearest US dollar.
B) In this case, would Eric have been better or worse off if he had instead used a forward contract with the same maturity and underlying asset, and a contractual exchange rate of USD 0.056 per MXN?
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Finance for Executives Managing for Value Creation
Authors: Gabriel Hawawini, Claude Viallet
4th edition
9781133169949, 538751347, 978-0538751346
