Question
Perfect Purchase is a U.S. electronics retailer importing consumer electronics from Japan. The company will need 19 million yen () in one year to pay
Perfect Purchase is a U.S. electronics retailer importing consumer electronics from Japan. The company will need 19 million yen () in one year to pay its suppliers.
The firm expects the following exchange rate scenarios and probabilities:
| Scenario | Spot rate in one year | Probability |
|---|---|---|
| A | $0.0081 | 0.1 |
| B | $0.0086 | 0.5 |
| C | $0.0091 | 0.4 |
A call option on yen expiring in one year costs $0.00042 per yen and has an strike price of $0.0086 per yen.
What is the total cost of hedging your payables with a call option (in $)?
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Investments
Authors: Zvi Bodie, Alex Kane, Alan J. Marcus
7th Edition
007331465X, 978-0073314655
