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Nestle corporation would like to use call options to hedge a 180,000 euro payable, The premium is $0.02 (per unit of euro) and the exercise
Nestle corporation would like to use call options to hedge a 180,000 euro payable, The premium is $0.02 (per unit of euro) and the exercise price of the option is $1.16 per euro. The option will not be exercised until the expiration date, if at all. Should Nestle buy call options on euros or sell call options on euros? If the spot rate at the time of maturity is $1.15 per euro, what is the total amount paid by the corporation if it acts rationally (after accounting for the premium paid)? Buy call options on euros; $212,400. Sell call options on euros; $205,200. Sell call options on euros; $203,400. Buy call options on euros; $210,600
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