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You owe 2,000,000 on 8/31/20. You plan to use options to hedge this risk. You can use either puts or calls that expire on 9/17/20,
You owe 2,000,000 on 8/31/20. You plan to use options to hedge this risk. You can use either puts or calls that expire on 9/17/20, have E = $1.45/, and are European. The current spot exchange rate is $1.50/ and you forecast that on 8/31/20 the spot exchange rate will be either $1.65/ or $1.40/.
a. What risk do you face?
b. What is your hedging strategy?
c. Describe all of the trades that you would make between now and 9/17/20 list what you are buying or selling, how much, and the date.
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