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What is the premium cost of option at the end of 90 days if a options market hedge is used? Krystal is a U.S.-based company
What is the premium cost of option at the end of 90 days if a options market hedgeis used?
Krystal is a U.S.-based company which manufactures, sells, and installs water purification equipment. The company just sold a system to the City of Nagasaki, Japan. The sale was priced in yen at 15,000,000, with payment due in 3 months. Additional information: Krystal's Japanese competitors are currently borrowing yen from Japanese banks at a spread of 2% above the Japanese money rate. Krystal's weighted average cost of capital is 18%, and the company wishes to protect the dollar value of this receivable. Three-month options from Kyushu Bank: * Call option on 15,000,000 at exercise price of 119.778/$ : a 1.6% premium. Put option on 15,000,000, at exercise price of 117.801/$ : a 4.6% premiumStep by Step Solution
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