Question
Micron Technology, Inc. (a U.S. based firm) negotiates a conditional currency call options with a bank to hedge its accounts payable of 10 million euros
Micron Technology, Inc. (a U.S. based firm) negotiates a conditional currency call options with a bank to hedge its accounts payable of 10 million euros due on November 30. Micron Technology will only exercise its option on the due date. The terms of the conditional currency call options are as follows:
K (exercise price) = $1.07 per euro, Trigger = $1.05 per euro, premium = $0.03 per euro, expiration date = November 30.
If the spot rate on the due date, i.e., November 30, is $1.03 per euro, what is the amount of U.S. dollar Micron Technology expects to pay for its 10 million euros?
Question 26 options:
| $10.3 million. |
| $11.0 million. |
| $10.7 million. |
| $10.6 million.
|
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