Due to your import of wine from France, you have an account payable in three months. You

desire to hedge this account using the options market

Calculate the outcome of this option if you end up executing it at

the end of the three months.

Todays date = March 1, 2020

Spot rate on the above date = $1.1450/euro

Account payable amount = euro 48,000.00

Commercial interest rate on US dollar = 6 percent

The calls and puts premiums in the table below are in percent.

Calls Puts

Strike Price

($/euro) May May

1.135 2.25 1.34

1.140 1.98 1.57

1.160 1.10 1.84

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1. Do you buy a May call or a May put (insert call or put)

2. If you select the May strike price of $1,14 and execute this options, what would be your

outcome?