• Micca Metals, Inc. is a specialty materials and metals company located in Detroit. The company specializes in specific precious metals and materials that are used in a variety of pigment applications. Micca just purchased a shipment of phosphates from Australia for AUD6,000,000 payable in six months. Six month at-the money call options on AUD6,000,000 at an exercise price of USD0.9000/AUD1 (AUD1.1111/USD1) are available at a premium of 3%.
  • Use a diagramto illustrate and explain Micca Metals position should it use such an option.
  • What is the break-even exchange rate?
  • What is the maximum amount that Micca Metals could realize if the exchange rate moves in their favor?
  • What is the maximum amount they could realize if the exchange rate moves against them?
  • What would Micca Metals expect future exchange rates to be to motivate the use of this option?