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BioCytex SA , a French biotech company, expects to receive royalty payments totalling 1 . 2 5 million next month and wants to receive U
BioCytex SA a French biotech company, expects to receive royalty payments
totalling million next month and wants to receive US dollars. It is interested
in protecting these payments against a drop in the value of the British pound. It can
sell day British pound futures at a price of $ per pound or it can buy pound
put options with a strike price of $ at a premium of cents per pound. The
spot price of the British pound is currently $ and the pound is expected to
trade in the range of $ to $ BioCytex's treasurer believes that the most
likely price for the British pound in days will be $ Assume that one option
contract specifies and that one futures contract specifies the same amount of
i How many futures contracts will BioCytex need to protect its receipts? How
many options contracts?
ii Calculate what BioCytex would gain or lose on the option and futures
position within the range of expected future exchange rates and if the British
pound settled at its most likely value.
iii. What is BioCytex's breakeven future spot price on the option contract? On
the futures contract?
iv Calculate the corresponding breakeven positions on the futures and options
contracts for those who took the other side of these contracts.
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