Question

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?

Answer 1

Amount received= $84,000

Step-by-step 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