Question

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:

Answer 1

50%

Step-by-step 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