24 February, 09:36

# A U. S. corporation has purchased currency put options to hedge a 100,000 Canadian dollar (C\$) receivable. The premium is \$.01 and the exercise price of the option is \$.75. If the spot rate at the time of maturity is \$.85, what is the net amount received by the corporation if it acts rationally?

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Answers (1)
1. 24 February, 10:04
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Amount received = \$84,000

Explanation:

Canadian dollars received = \$100,000

To get the value in dollars multiply by the spot rate.

Dollar value = 100,000 * 0.85 = \$85,000

Premium paid = Amount * premium rate

Premium paid = 100,000 * 0.01

Premium rate = \$1,000

Amount received = Total amount received - Premium rate

Amount received = 85,000 - 1,000

Amount received = \$84,000
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