Us firm expects a payable of euro500000 in six months, Ask an Expert

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U.S. firm expects a payable of €500,000 in six months. Current exchange rate is $1.35/€. Firm will have to buy euros in six months. Consider 3 possible spot prices in six months.

- $1.15/€

- $1.36/€

- $1.52/€

A) What kind of option, put or call, is appropriate to hedge with? (Assume an exercise price of $1.35/€)

B) Which scenario(s) will the firm exercise their option?

C) Which one scenario does the firm hopes will happen?

D) In that one scenario, what is the option worth at maturity?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92715869

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