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

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 ago

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 [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:

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Suppose your firm will export to Peru (currency Peruvian New Sol [PEN]) and will receive PEN...

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