Question
In: Finance
Suppose your firm will export to Peru (currency Peruvian New Sol [PEN]) and will receive PEN...
Suppose your firm will export to Peru (currency Peruvian New Sol [PEN]) and will receive PEN 750,000 in 90 days. Put options with a strike price of USD .300 are available for a premium of USD .025 per unit. Your firm decides to hedge its exposure by purchasing Put options. Suppose in 90 days the spot rate is USD .315 / PEN. Your net cash inflow from this transaction is:
USD 243,750
USD 236,250
USD 217,500
USD 206,250
Solutions
Expert Solution
Strike Price = USD 0.300/PEN
Premium = USD 0.025/PEN
St = USD 0.315/PEN
St > Strike price. So, the put option expires worthless and the comapany exchanges PEN 750,000 at the market price of USD 0.315/PEN
Net cash inflow = Amount to be exchanged * Spot rate - Total premium paid
Total premium paid = USD 0.025/PEN * 750,000
Total premium paid = USD 18,750
Net cash inflow = 750,000 * 0.315 - 18,750
Net cash inflow = USD 217,500
jeff jeffy answered 2 years agoRelated Solutions
Suppose your firm will export to Peru (currency Peruvian New Sol [PEN]) and will receive PEN...
Suppose your firm will export to Peru (currency Peruvian New Sol
[PEN]) and will receive PEN 750,000 in 90 days. Put options with a
strike price of USD .300 are available for a premium of USD .025
per unit. Your firm decides to hedge its exposure by purchasing Put
options. Suppose in 90 days the spot rate is USD .315 / PEN. Your
net cash inflow from this transaction is:
Suppose your firm will export to Peru (currency Peruvian New Sol [PEN]) and will receive PEN...
Suppose your firm will export to Peru (currency Peruvian New Sol
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strike price of USD .300 are available for a premium of USD .025
per unit. Your firm decides to hedge its exposure by purchasing Put
options. Suppose in 90 days the spot rate is USD .315 / PEN. Your
net cash inflow from this transaction is:
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