Question
Suppose that your firm is a U.S.-based importer of German automobile accessories. You pay for them in euros and sell them in dollars. You have
Suppose that your firm is a U.S.-based importer of German automobile accessories. You pay for them in euros and sell them in dollars. You have just ordered next year's inventory. In one year your firm owes a payment of 100,000 to your German supplier. Today's spot exchange rate is 1.00 = $1.50 and one year call and put options are available on the euro with a variety of strike prices. How can you place an upper limit on the dollar cost of this order?
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