Question
Q4. A) How exchange rate risk is managed by an MNC? B) Mr. Ali has bought a Call option whereby volume of the currency to
Q4. A) How exchange rate risk is managed by an MNC?
B) Mr. Ali has bought a Call option whereby volume of the currency to be exchanged is USD100,000 executeable in one week and the exercise price is PKR 165/USD1. As, he has imported some goods and is about to pay to USA exporter. Current prevalent spot rate is PKR153/1USD. Mr Ali has paid a call premium of USD50. After one week:
| Case 1: The exchange rate of PKR has appreciated by 10% | Case 2: The exchange rate of PKR has depreciated by 8% |
- In which case will Mr. Ali exercise the option?
Find the gain or loss on the option in both cases for buyer and seller of option?
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Globalization Gating And Risk Finance
Authors: Unurjargal Nyambuu, Charles S. Tapiero
1st Edition
1119252652, 978-1119252658
