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Question two Cosmo, a Japanese exporter, wishes to hedge its $15 million in dollar receivables coming due in 60 days. In order to reduce its
Question two Cosmo, a Japanese exporter, wishes to hedge its $15 million in dollar receivables coming due in 60 days. In order to reduce its net cost of hedging to zero, however, Cosmo sells a 60-day dollar call option for $15 million with a strike price of 98/$ and uses the premium of $314,000 to buy a 60 -day $15 million put option at a strike price of 90/$. a. Graph the payoff on Cosmo's hedged position over the range 80/$=110/$. What risk is Cosmo subjecting itself to with this option hedge? b. What is the net yen value of Cosmo's option hedged position at the following future spot rates: 85/$,95/$, and 105/$ ? c. As an alternative to using options, Cosmo could have hedged with a 60-day forward contract at a price of 97/S. What would be the yen value of Cosmo's hedged receivable if it had used a forward contract to hedge? d. At what exchange rate will the hedged value of Cosmo's dollar receivables be the same whether it used the option hedge or forward hedge
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