Question
Deco Australian Fragrance Ltd import French perfume and owes the French exporting company EUR250,000, due in three months. The following information is available: Current spot
Deco Australian Fragrance Ltd import French perfume and owes the French exporting company EUR250,000, due in three months. The following information is available: Current spot exchange rate (AUD/EUR) 1.60 Expected spot exchange rate (AUD/EUR) 1.65 and 1.55 with probabilities of 0.4 and
0.6, respectively Premium on EUR call option AUD0.01 Exercise exchange rate 1.61 Time to expiry 3 months Calculate the expected value of Deco Australian Fragrance Ltd payables in Australian dollar terms under an option hedge. Will the decision to hedge be taken?
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Managerial Economics Theory Applications and Cases
Authors: Bruce Allen, Keith Weigelt, Neil A. Doherty, Edwin Mansfield
8th edition
978-0393124491, 393124495, 978-0039391277, 393912779, 978-0393912777
