A US Corporation Has Purchased Currency Call Options to Hedge a a 70,000

question 115

Multiple Choice

A U.S. corporation has purchased currency call options to hedge a 70,000 pound (£) payable. The premium is $.02 and the exercise price of the option is $.50. If the spot rate at the time of maturity is $.65, what is the total amount paid by the corporation if it acts rationally?

• A) $33,600
• B) $46,900
• C) $44,100
• D) $36,400

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