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Suppose that Goodwin Co., a U.S. based MNC, knows that it will receive 200,000 pounds in one year. It is considering a currency put option to hedge this receivable. Currency put options on the pound with expiration dates in one year currently have an exercise price of $1.18 and a premium of $0.03. Goodwin Co. wishes to use its own forecast of what the spot rate might be for the pound one year from now. • $1.16, with 20.00% probability • $1.20, with 70.00% probability $1.23, with 10.00% probability For each scenario in the following table, fill in the dollar amount received per unit for the put options (5th column), the total dollar amount received for 200,000 pounds when using the put options (6th column), and whether Goodwin would exercise the options (7th column) Pound Spot Rate in 1 Scenario Year Option Premium Amount Received Per Unit of Put Options Total Cost of Owning Options, With Premium Dollar Amount Paid for 200,000 Pounds when Owning Put Options Exercise Options? 1 $1.16 $0.03 $1.18 $ 2 $1.20 $0.03 $1.20 $ $ 3 $1.23 $0.03 $1.23

Suppose that Goodwin Co., a U.S. based MNC, knows that it will receive 200,000 pounds in one year. It is considering a currency put option to hedge this receivable. Currency put options on the pound with expiration dates in one year currently have an exercise price of $1.18 and a premium of $0.03. Goodwin Co. wishes to use its own forecast of what the spot rate might be for the pound one year from now. • $1.16, with 20.00% probability • $1.20, with 70.00% probability $1.23, with 10.00% probability For each scenario in the following table, fill in the dollar amount received per unit for the put options (5th column), the total dollar amount received for 200,000 pounds when using the put options (6th column), and whether Goodwin would exercise the options (7th column) Pound Spot Rate in 1 Scenario Year Option Premium Amount Received Per Unit of Put Options Total Cost of Owning Options, With Premium Dollar Amount Paid for 200,000 Pounds when Owning Put Options Exercise Options? 1 $1.16 $0.03 $1.18 $ 2 $1.20 $0.03 $1.20 $ $ 3 $1.23 $0.03 $1.23

International Financial Management
International Financial Management
14th Edition
ISBN:9780357130698
Author:Madura
Publisher:Madura
Chapter14: Multinational Capital Budgeting
Section: Chapter Questions
Problem 30QA
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Suppose that Goodwin Co., a U.S. based MNC, knows that it will receive 200,000 pounds in one year. It is considering a currency put option to hedge this receivable. Currency put options on the pound with expiration dates in one year currently have an exercise price of $1.18 and a premium of $0.03. Goodwin Co. wishes to use its own forecast of what the spot rate might be for the pound one year from now. • $1.16, with 20.00% probability • $1.20, with 70.00% probability $1.23, with 10.00% probability For each scenario in the following table, fill in the dollar amount received per unit for the put options (5th column), the total dollar amount received for 200,000 pounds when using the put options (6th column), and whether Goodwin would exercise the options (7th column) Pound Spot Rate in 1 Scenario Year Option Premium Amount Received Per Unit of Put Options Total Cost of Owning Options, With Premium Dollar Amount Paid for 200,000 Pounds when Owning Put Options Exercise Options? 1 $1.16 $0.03 $1.18 $ 2 $1.20 $0.03 $1.20 $ $ 3 $1.23 $0.03 $1.23
Transcribed Image Text:Suppose that Goodwin Co., a U.S. based MNC, knows that it will receive 200,000 pounds in one year. It is considering a currency put option to hedge this receivable. Currency put options on the pound with expiration dates in one year currently have an exercise price of $1.18 and a premium of $0.03. Goodwin Co. wishes to use its own forecast of what the spot rate might be for the pound one year from now. • $1.16, with 20.00% probability • $1.20, with 70.00% probability $1.23, with 10.00% probability For each scenario in the following table, fill in the dollar amount received per unit for the put options (5th column), the total dollar amount received for 200,000 pounds when using the put options (6th column), and whether Goodwin would exercise the options (7th column) Pound Spot Rate in 1 Scenario Year Option Premium Amount Received Per Unit of Put Options Total Cost of Owning Options, With Premium Dollar Amount Paid for 200,000 Pounds when Owning Put Options Exercise Options? 1 $1.16 $0.03 $1.18 $ 2 $1.20 $0.03 $1.20 $ $ 3 $1.23 $0.03 $1.23
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