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You plan to visit Sydney, Australia in six months to attend an international business conference. You expect to incur a total cost of 6,000 Australian
You plan to visit Sydney, Australia in six months to attend an international business conference. You expect to incur a total cost of 6,000 Australian dollars for lodging, meals, and transportation during your stay. As of today, the spot exchange rate is $0.69/A$ and the six-month forward rate is $0.71/A$. You can buy the six-month call option on an Australian dollar with an exercise price of $0.67/A$for the premium of $0.06/A$. Assume that your expected future spot exchange rate is the same as the forward rate. The six-month interest rate is 5 percent per annum in the United States and 4 percent per annum in Australia. At what future spot exchange rate will you be indifferent between the forward and option market hedges? A O $0.65/A$ O $0.63/A$ O $0.67/A$ O $0.69/A$
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