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Boeing has a future payable £5 million in one year. They can use either forward contract...

Boeing has a future payable £5 million in one year. They can use either forward contract for options to eliminate their risk exposure. According to the following information, which rate is the break-even point between option hedge and forward hedge?

The U.S. interest rate: 6.00% per annum.

The U.K. interest rate: 6.50% per annum.

The spot exchange rate: $1.80/£.

The forward exchange rate and the strike price: $1.75/£ (1-year maturity).

The option premium: $0.0018/£

A. $1.7481/£

B. 1.312/£

C. 1.123/£

D. 1.232/£

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jeff jeffy answered 2 years ago
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