Question
Consider possible spot rates for the Swiss Franc on May 16.You should consider spot rates at regular intervals. Recall that in February, you do not
Consider possible spot rates for the Swiss Franc on May 16.You should consider spot rates at regular intervals. Recall that in February, you do not know the spot rate for the Swiss Franc on May 16.Rather than consider one possible future spot rate, you should consider many.Recall that you have done this for option speculation.Here the objective is hedging, but you can still do the same type of analysis in an excel spreadsheet or with a graph.You need to consider pairs of future spot rates and Total Dollar Cost given hedging with an option. Given an option hedge, calculate the Total Dollar Cost of the cowbell purchase (1,000,000) corresponding to each possible future spot rate for the Swiss Franc.
Option Strike Price Call option premium
$1.050 $0.0941
$1.075 $0.0812
$1.100 $0.0695
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