Hedging with a Bear Spread (See the chapter appendix.) Marson, Inc., has some customers in Canada and frequently receives payments denominated in Canadian dollars (CS). The current spot rate for the Canadian dollar is $0.75. Two call options on Canadian dollars are available. The first option has an exercise price of $0.72 and a premium of $0.03. The second option has an exercise price of $0.74 and a premium of $0.01. Marson, Inc., would like to use a bear spread to hedge a receivable position of C $ 50 , 000 , Describe how Marson, Inc., could use a bear spread to hedge its position. Assume the spot rate of the Canadian dollar in one month is $0.73. Was the hedge effective?

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 11, Problem 46QA
Textbook Problem

Hedging with a Bear Spread (See the chapter appendix.) Marson, Inc., has some customers in Canada and frequently receives payments denominated in Canadian dollars (CS). The current spot rate for the Canadian dollar is $0.75. Two call options on Canadian dollars are available. The first option has an exercise price of $0.72 and a premium of $0.03. The second option has an exercise price of $0.74 and a premium of $0.01. Marson, Inc., would like to use a bear spread to hedge a receivable position of C $ 50 , 000 ,

  1. Describe how Marson, Inc., could use a bear spread to hedge its position.
  2. Assume the spot rate of the Canadian dollar in one month is $0.73. Was the hedge effective?

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