Hopkins Co. transported goods to Switzerland and will receive 2 million Swiss francs in three months. It believes the three-month forward rate will be an accurate forecast of the future spot rate. The three-month forward rate of the Swiss franc is $0.68 A put option is available with an exercise price of $0.69 and a premium of $0.03. Would Hopkins prefer a put option hedge to no hedge? Explain.

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 6ST
Textbook Problem

Hopkins Co. transported goods to Switzerland and will receive 2 million Swiss francs in three months. It believes the three-month forward rate will be an accurate forecast of the future spot rate. The three-month forward rate of the Swiss franc is $0.68 A put option is available with an exercise price of $0.69 and a premium of $0.03. Would Hopkins prefer a put option hedge to no hedge? Explain.

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