Assume it is June 1 6 , 2 0 2 1 . The British Pound's 3 -
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Assume it is June The British Pound's month forward rate is US$ per The premium of month Pound call options with a strike price of US$ is US$ and the premium of month Pound put options with a strike price of US$ is US$
a A US ImportCo must pay on September for goods purchased from Britain.
i Discuss how foreign currency forwards and currency options can be used for hedging. Please draw the graphs for the unhedged and hedged costs of payment by using currency forwards and currency options.
ii What would be the profit or loss on the short or long forwards positions and the hedged costs of payment for the firm if the expected future spot rate in three months is US$ What would be the effective exchange rate the US ImportCo is guaranteed that its exchange rate will be fixed at for the pounds it will pay.
iii What would be the profit or loss on the long put or call options positions and the hedged costs of payment for the firm if the expected future spot rate in three months is US$
What would be the effective maximum exchange rate the US ImportCo is guaranteed that its exchange rate will be fixed at for the pounds it will pay.
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