Hedging with a Bull Spread (See the chapter appendix.) Evar Imports, Inc, buys chocolate from Switzerland and resells it in the United States. It just purchased chocolate invoiced at ; payment for the invoice is due in 30 days. Assume that the current exchange rate of the Swiss franc is $0.74. Also assume that three call options for the franc are available. The first option has a strike price of $0.74 and a premium of $0.03; the second option has a strike price of $0.77 and a premium of $0.01; and the third option has a strike price of $0.80 and a premium of $0.006. Evar Imports is concerned about a modest appreciation in the Swiss franc.
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