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An importer in the US plans to receive a shipment worth 400,000 Euro in 3 months. She has the following alternatives to protect herself from
An importer in the US plans to receive a shipment worth 400,000 Euro in 3 months. She has the following alternatives to protect herself from adverse changes in the value of the Eu the dollar. Alternative 1: Do nothing. Alternative 2: Enter into a forward contract with a bank. The forward price of the Euro in terms of the dollar is $1.27. Alternative 3: Acquire 4 100,000 American style Euro options. The following is information regarding the options Strike Price Premium Put $1.28 $.025 Call $1.28 $.018 Also assume the interest rate on a 3-month loan in Philadelphia (where the importer is located) is 1% (for the 3 month period). The importer believes that the Euro could trade as low as $1.22 and as high as $1.33 in 3 months' time. Given this information, please answer the following questions. Hint: Do not forget that that the premium is paid up front. dollars for her shipment and Part 1: Suppose the importer decides on Alternative 1. If, in three months, the Euro trades at the low end, she will pay dollars if the Euro trades on the high end. Record your answers without a comma or dollar sign. Part 2: Suppose the importer decides on Alternative 2. If, in three months, the Euro trades at the low end, she will pay dollars for her shipment and dollars if the Euro trades on the high end. Record your answers without a comma or dollar sign. Part 3: Suppose the importer decides on Alternative 3. If, in three months, the Euro trades at the low end, she ends up paying dollars for her shipment a dollars if the Euro trades on the high end. Record your answers without a comma or dollar sign. An importer in the US plans to receive a shipment worth 400,000 Euro in 3 months. She has the following alternatives to protect herself from adverse changes in the value of the Eu the dollar. Alternative 1: Do nothing. Alternative 2: Enter into a forward contract with a bank. The forward price of the Euro in terms of the dollar is $1.27. Alternative 3: Acquire 4 100,000 American style Euro options. The following is information regarding the options Strike Price Premium Put $1.28 $.025 Call $1.28 $.018 Also assume the interest rate on a 3-month loan in Philadelphia (where the importer is located) is 1% (for the 3 month period). The importer believes that the Euro could trade as low as $1.22 and as high as $1.33 in 3 months' time. Given this information, please answer the following questions. Hint: Do not forget that that the premium is paid up front. dollars for her shipment and Part 1: Suppose the importer decides on Alternative 1. If, in three months, the Euro trades at the low end, she will pay dollars if the Euro trades on the high end. Record your answers without a comma or dollar sign. Part 2: Suppose the importer decides on Alternative 2. If, in three months, the Euro trades at the low end, she will pay dollars for her shipment and dollars if the Euro trades on the high end. Record your answers without a comma or dollar sign. Part 3: Suppose the importer decides on Alternative 3. If, in three months, the Euro trades at the low end, she ends up paying dollars for her shipment a dollars if the Euro trades on the high end. Record your answers without a comma or dollar sign
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