Q 17 to Q 22 combined:

Melbourne Corp has future receivables of 10,000,000 (10 mio) New Zealand dollars (NZD) in one year from now. It must decide whether to use options or a forward market hedge to hedge this position. Use the following information.

Today's spot exchange rate of NZD versus USD is 0.54 USD per NZD. One-year Forward rate is 0.50 USD per NZD. One year call option: Exercise price = 0.50 USD per NZD; premium = 0.07 USD per NZD One year put option: Exercise price = 0.52 USD per NZD; premium = 0.03 USD per NZD

Q 17: Suppose Melbourne Corp uses a forward contract. How many USD will Melbourne Corp be able to convert 10 mio NZD into? Give the answer to the nearest USD.

Q 18: Suppose Melbourne Corp uses an option to hedge (instead of a forward). (You need to decide whether it uses put options or call options). Suppose the spot exchange rate (number of USD per NZD) in one years time turns out to be 0.48. How many USD will Melbourne Corp be able to convert 10 mio NZD into (AFTER allowing for the option premium (but neglect the time value of money on the option premium))? Give the answer to the nearest USD.

Q 19: Instead of as in Q 18, suppose the spot exchange rate (number of USD per NZD) in one years time turns out to be 0.49, how many USD will Melbourne Corp be able to convert 10 mio NZD into (AFTER allowing for the option premium (but neglect the time value of money on the option premium))? Give the answer to the nearest USD.

Q 20: Instead of as in Q 18, suppose the spot exchange rate (number of USD per NZD) in one years time turns out to be 0.51, how many USD will Melbourne Corp be able to convert 10 mio NZD into (AFTER allowing for the option premium (but neglect the time value of money on the option premium))? Give the answer to the nearest USD.

Q 21: Instead of as in Q 18, suppose the spot exchange rate (number of USD per NZD) in one years time turns out to be 0.53, how many USD will Melbourne Corp be able to convert 10 mio NZD into (AFTER allowing for the option premium (but neglect the time value of money on the option premium))? Give the answer to the nearest USD.

Q 22: Instead of as in Q 18, suppose the spot exchange rate (number of USD per NZD) in one years time turns out to be 0.55, how many USD will Melbourne Corp be able to convert 10 mio NZD into (AFTER allowing for the option premium (but neglect the time value of money on the option premium))? Give the answer to the nearest USD.