Felix will receive 20,000 British pounds one month from now as payment for apple juice produced and export by his company. Felix is concerned about his exposure because he believes that there are two possible scenarios: (1) the pound will depreciate by 3% over the next month or (2) the pound will appreciate by 2% over the next month. There is a 70% chance that Scenario 1 will occur. There is a 30% chance that Scenario 2 will occur. Felix notices the spot rate of the pound is GHS 8.1 and the one month forward rate is GHS 8.6. Felix can purchase a put option over the counter from a securities firm that has an strike price of GHS 8.6, a premium of GHS0.025, and an expiration date of one month from now. Determine the amount of cedis received by the apple Company under each of the two exchange rate scenarios if: a) The receivables to be received in one month are not hedged. b) A put option is used to hedge the receivables in one month. c) A forward hedge is used to hedge the receivables in one month.
Felix will receive 20,000 British pounds one month from now as payment for apple juice produced and
export by his company. Felix is concerned about his exposure because he
believes that there are two possible scenarios: (1) the pound will
over the next month or (2) the pound will appreciate by 2% over the next month.
There is a 70% chance that Scenario 1 will occur. There is a 30% chance
that Scenario 2 will occur.
Felix notices the spot rate of the pound is GHS 8.1 and the one month
forward rate is GHS 8.6. Felix can purchase a put option over the counter
from a securities firm that has an strike price of GHS 8.6, a premium of
GHS0.025, and an expiration date of one month from now. Determine the amount of
cedis received by the apple Company under each of the two exchange rate
scenarios if:
a) The receivables to be received in one month are not hedged.
b) A put option is used to hedge the receivables in one month.
c) A forward hedge is used to hedge the receivables in one month.
Trending now
This is a popular solution!
Step by step
Solved in 6 steps
