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Your firm is a U.S.-based importer of Italian bicycles. AS AN IMPORTER, YOU ARE BUYING BICYCLES AND PAYING OUT EURO. You have placed an order
Your firm is a U.S.-based importer of Italian bicycles. AS AN IMPORTER, YOU ARE BUYING BICYCLES AND PAYING OUT EURO. You have placed an order with an Italian supplier for 60,000.00 worth of bicycles. Payment (in ) is due in 12 months. One-year at-the-money put and call options on 10,000 exist. The spot exchange rate is $1.1500/. In the next period, the euro can increase in dollar value to $1.25/ or fall to $1.05/. = The interest rate in dollars is is = 7.10%; the interest rate in the euro zone is i 5.00%. How many at-the-money put options on 10,000 should you buy or sell today to hedge this payable? sell 12 puts buy 12 puts sell 6 puts buy 6 puts
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