MNC believes there is a strong chance the dollar will decline against the Ringgit in the next six months to $.27/Ringgit. If MNC is confident of this prediction which alternative (future or put option) should MNC choose? What is the net amount, MNC receives from the transaction in dollars? Show work. Future Contract Value of Rec. Today Value in Future Contract Cost of Future Rec. Ringgit Spot Today Dollar 100,000 $ 0.24 $ 24,000 100,000 $ 0.22 $ 22,000 $ 2,000 Put Option Strike Price less premium Net cost of Put at strike price 100000 S 0.2175 $ $ 21,750 2,250 Value at different future spot prices Value Rec. Put Value Less prem Tot. value Gain/Loss Depreciates 30% $ 0.30 $ 29,900 0 $ (1,250) $ 28,650 $ 4,650 Depreciates 20% $ 0.27 $ 27,000 OS (1,250) $ 25,750 $ 1,750 Depreciates 10% $ 0.25 $ 25,300 0 $ (1,250) $ 24,050 $ 50 Strike Price 0.2300 $ 23,000 o $ (1,250) $ 21,750 $ (2,250) Appreciates 10% $ 0.21 $ 20,700 $ 2,300 $(1,250) $ 21,750 S (2,250) Appreciates 20% $ 0.18 $ 18,400 $ 4,600 $ (1,250) $ 21,750 $ (2,250) Appreciates 30% $ 0.16 $ 16,100 $ 6,900 $(1,250) $ 21,750 $ (2,250) If the currency appreciates to $.27 (dollar declines) the Put option is clearly a better option and the company would realize a potential gain of $1,750 over the current value of the contract. I MNC believes there is a strong chance the dollar will decline against the Ringgit in the next six months to $.27/Ringgit. If MNC is confident of this prediction which alternative (future or put option) should MNC choose? What is the net amount, MNC receives from the transaction in dollars? Show work. Future Contract Value of Rec. Today Value in Future Contract Cost of Future Rec. Ringgit Spot Today Dollar 100,000 $ 0.24 $ 24,000 100,000 $ 0.22 $ 22,000 $ 2,000 Put Option Strike Price less premium Net cost of Put at strike price 100000 S 0.2175 $ $ 21,750 2,250 Value at different future spot prices Value Rec. Put Value Less prem Tot. value Gain/Loss Depreciates 30% $ 0.30 $ 29,900 0 $ (1,250) $ 28,650 $ 4,650 Depreciates 20% $ 0.27 $ 27,000 OS (1,250) $ 25,750 $ 1,750 Depreciates 10% $ 0.25 $ 25,300 0 $ (1,250) $ 24,050 $ 50 Strike Price 0.2300 $ 23,000 o $ (1,250) $ 21,750 $ (2,250) Appreciates 10% $ 0.21 $ 20,700 $ 2,300 $(1,250) $ 21,750 S (2,250) Appreciates 20% $ 0.18 $ 18,400 $ 4,600 $ (1,250) $ 21,750 $ (2,250) Appreciates 30% $ 0.16 $ 16,100 $ 6,900 $(1,250) $ 21,750 $ (2,250) If the currency appreciates to $.27 (dollar declines) the Put option is clearly a better option and the company would realize a potential gain of $1,750 over the current value of the contract