Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

An American firm has just bought merchandise from a British firm for 50,000 on terms of 90-day payment. This firm has purchased a 3-month call

An American firm has just bought merchandise from a British firm for 50,000 on terms of 90-day payment. This firm has purchased a 3-month call option on 50,000 pounds at a strike price of $1.7 per pound and a premium cost of $0.02 per pound. On the day the option matures, the spot exchange rate is $1.8 per pound. What will be the value of the pound payable in U.S. dollars, if the U.S. firm exercises the option?

a. $91,000

b. $86,000

c. $85,000

d. $81,000

And why?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Capital Markets Institutions And Instruments

Authors: Frank J. Fabozzi, Franco Modigliani

4th Edition

0136026028, 9780136026020

More Books

Students also viewed these Finance questions