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Suppose that Mullen Co, a U.S. -based MNC, knows that it will need 100,000 pounds in one year in order to purchase supplies. It is
Suppose that Mullen Co, a U.S. -based MNC, knows that it will need 100,000 pounds in one year in order to purchase supplies. It is considering a currency call option to hedge this payable. Currency call options on the pound with expiration dates in one year currently have an extrose price of $1.20 and a premium of $0.05. Mullen Co. wishes to use its own forecast of what the spot rate might be for the pound one year from now. $1.16, with 30.00% probability $1.21, with 50.00% probability $1.22, with 20.00% probability For each scenario in the following table, fill in the dollar amount paid per unit for the call options (Sth column), the total dollar amount paid for 100,000 pounds when using the call options (6th column), and whether Mullen would exerose the options (7th column) Pound Spot Per Unit Cost Dollar Amount Paid for Rate in 1 Option of Owning Total Cost of Owning 100,000 Pounds when Owning Exercise Scenario Year Premium Option Options, With Premium Call Options Options? 1 $1.16 50.05 $1.16 5 2 $1.21 $0.05 NO 3 $1.22 50.05 $1.20 Yes $1.20 Nm
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