Question
Your company will receive 1 million euros in one year. You want to hedge the exchange rate risk. You collected the following data: Spot exchange
Your company will receive 1 million euros in one year. You want to hedge the exchange rate risk. You collected the following data:
Spot exchange rate: 1.3 USD/EUR
Price of a put on the Euro with strike price 1.3 USD/EUR: 0.06 USD
Price of a call on the Euro with strike price 1.3 USD/EUR: 0.05 USD
Size of options contracts: 1 EUR
U.S. interest rate: 1 percent APR
Euro interest rate: 2 percent APR
What is the future value in one year of the cost of the options necessary to hedge the exchange rate risk (number of options x price x (1 + USD interest rate))?
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International financial management
Authors: Jeff Madura
12th edition
1133947832, 978-1305195011, 978-1133947837
