Question
You are US company, 500,000 BP (British Pound) payable to UK in one year. Answer in terms of US$. Information for Forward Contract: Forward exchange
You are US company, 500,000 BP (British Pound) payable to UK in one year. Answer in terms of US$.
Information for Forward Contract:
Forward exchange rate (one yr): 1.54 $/BP
Information for Money Market Instruments (MMI):
Current exchange rate: 1.50 $/BP
Investment return at Aerion Fund Management (in UK): 4% annual
Interest rate of borrowing from Bank of America (in USA): 2% annual
Information you need for Currency Options Contract:
Options premium: 0.015 $/BP
Interest rate of borrowing from Bank of America (USA): 2% annual
Allowed to exercise options at 1.54 $/BP
How much would you pay to Bank of America ONE YEAR from now in order to sign the Currency Options Contract?
About $6540
About $7702
About $7650
$7882
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Advances In Financial Machine Learning
Authors: Marcos Lopez De Prado
1st Edition
1119482089, 978-1119482086
