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21. Currency options Please refer to Table 3 in the datafile. Suppose Ganado has a receivable of 1mln EUR due in 3 months. If the EUR/USD spot rate increases to 1.1830/1.1836 (bid/ask) over this period, how many USD will the company receive if the transaction exposure was hedged with currency options? (Note: use the spot bid when calculating the cost of a put option and the spot ask for the call option) a) 1 169 404 USD Cb) 1 167 904 USD c) 1 167 496 USD d) 1 168 996 USD Ganado is a US company interested in hedging currency risk from its European business. You observe the following information related to hedging transaction exposure. ask bid 1,1823 EUR/USD spot 1,1829 Cost of capital (p.a.) 12% Forward market EUR/USD 3-month premium/discount Money market 3-month borrowing rate (p.a.) 3-month deposit rate (p.a.) Eurozone 10% 8% 8% 6% Options market call Maturity Premium EUR/USD strike 3 months 1,25% 1,1850 put 3 months 1,15% 1,1815 DO EuroTrade Americas is a US subsidiary of a Dutch company The subsidiary uses USD as functional currency and its balance sheet has to be translated into EUR every quarter. USD Assets Cash Accounts receivable Inventory Net plant & equipment Total 2 000 000 1500 000 3 100 000 2 400 000 9000 000 Liabilities Accounts payable Short-term bank debt Long-term debt Common stock Total 900 000 1 800 000 2 300 000 4 000 000 9 000 000 21. Currency options Please refer to Table 3 in the datafile. Suppose Ganado has a receivable of 1mln EUR due in 3 months. If the EUR/USD spot rate increases to 1.1830/1.1836 (bid/ask) over this period, how many USD will the company receive if the transaction exposure was hedged with currency options? (Note: use the spot bid when calculating the cost of a put option and the spot ask for the call option) a) 1 169 404 USD Cb) 1 167 904 USD c) 1 167 496 USD d) 1 168 996 USD