MNC needs 400,000 Canadian dollars (C$) in 60 days to cover a payable position. There is a 60-day call option with an exercise price of $.75 and a premium of $.01 is available and a 60-day put option with an exercise price of $.73 and a premium of $.01 is available. MNC plans to purchase options to hedge its payable position. Assuming that the spot rate in 60 days is $.71, what is the net amount paid?

MNC needs 400,000 Canadian dollars (C$) in 60 days to cover a payable position. There is a 60-day call option with an exercise price of $.75 and a premium of $.01 is available and a 60-day put option with an exercise price of $.73 and a premium of $.01 is available. MNC plans to purchase options to hedge its payable position. Assuming that the spot rate in 60 days is $.71, what is the net amount paid?

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter5: Currency Derivatives

Section: Chapter Questions

Problem 4ST

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