Ask Question
17 July, 18:09

A U. S. corporation has purchased currency call options to hedge a 70,000 pound payable. The premium is $.02 and the exercise price of the option is $.50. If the spot rate at the time of maturity is $.65, what is the total amount paid by the corporation if it acts rationally?

+1
Answers (1)
  1. 17 July, 19:13
    0
    Answer: $36,400

    Explanation:

    Given the following;

    Premium price = $0.02

    Exercise price = $0.5

    Amount (pound payable) payable = $70,000

    Therefore, total amount will be the sum of the actual amount when the option is being exercised and the amount paid as premium.

    Therefore,

    Amount paid on exercised option = dollar payable * exercise price

    Amount paid on exercise option = 70000 * 0.5 = $35,000

    Amount paid as premium = dollar payable * premium price

    Amount paid as premium = 70000 * 0.02 = $1,400

    Therefore total amount paid = $35,000 + $1,400 = $36,400
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “A U. S. corporation has purchased currency call options to hedge a 70,000 pound payable. The premium is $.02 and the exercise price of the ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers