Question

A&X Corp wants to use option to hedge its receivables of 150,000 euro in 90 days; the available options are as follow: the call with an exercise price $1.68, a 90-day expiration date and a premium of $0.02 per unit. The put option with an exercise price of $1.70, a 90-day expiration date and a premium of $.02 per unit. Ninety days (90 days) has expired and the spot rate for the Euro is $1.67. How much will A&X Corp. Receive?

Answer 1

the amount that received is $249,000

Step-by-step explanation:

The computation of the amount that received is as follows

The Amount received in USD after 90 days is

= Amount in Euro × (Exchange Rate - Premium)

= 150000 euro × ($1.68 - $0.02)

= $249,000

Hence, the amount that received is $249,000

We simply applied the above formula so that the correct value could come

And, the same is to be considered