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Suppose the USD/euro exchange rate is 1.25 with a volatility of 15%. A U.S. company will receive 1 million euros in three months. The euro
Suppose the USD/euro exchange rate is 1.25 with a volatility of 15%. A U.S.
company will receive 1 million euros in three months. The euro and USD risk
free rates are 5% and 4%, respectively. The company decides to use s range
forward contract with the lower strike price equal to 1.15.
(a) What should the higher strike price be to create a zero-cost contract?
(b) What position in calls and puts should the company take?
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