1 the current spot exchange rate is 155 euro100 and the, Ask an Expert

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1. The current spot exchange rate is $1.55 = €1.00 and the three-month forward rate is $1.60 = €1.00. Consider a three-month American call option on €62,500 with a strike price of $1.50 = €1.00. If you pay an option premium of $5,000 to buy this call, at what exchange rate will you break-even?

A. $1.58 = €1.00

B. $1.62 = €1.00

C. $1.50 = €1.00

D. $1.68 = €1.00

2. The current spot exchange rate is $1.55 = €1.00 and the three-month forward rate is $1.60 = €1.00. Consider a three-month American put option on €62,500 with a strike price of $1.50 = €1.00. If you pay an option premium of $5,000 to buy this put, at what exchange rate will you break-even?

A. $1.58 = €1.00

B. $1.62 = €1.00

C. $1.50 = €1.00

D. $1.68 = €1.00

E. $1.42 = €1.00

3. The most direct and popular way of hedging transaction exposure is by

A. exchange-traded futures options

B. currency forward contracts.

C. foreign currency warrants.

D. borrowing and lending in the domestic and foreign money markets.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92751911

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