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14 August, 13:03

You are the treasurer of Arizona Corp. and must decide how to hedge (if at all) future receivables of 350,000 Australian dollars (A$) 180 days from now. Put options are available for a premium of $.02 per unit and an exercise price of $.50 per Australian dollar. The forecasted spot rate of the Australian dollar in 180 days is:

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  1. 14 August, 13:08
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    50%

    Explanation:

    The computation of the probability for put option will be exercised is shown below:

    She will exercise at the time when the exercise price i. e $.50 is bigger than the future spot price i. e (20% + 30% = 50%)

    So in this case the probability should be 50%

    Hence, the correct answer is option c.

    All other information which is given is not relevant. Hence, ignored it
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Home » Business » You are the treasurer of Arizona Corp. and must decide how to hedge (if at all) future receivables of 350,000 Australian dollars (A$) 180 days from now. Put options are available for a premium of $.02 per unit and an exercise price of $.
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