A Japanese Exporter Has a €1,000,000 Receivable Due in One

question 9

Multiple Choice

A Japanese exporter has a €1,000,000 receivable due in one year.Detail a strategy using options that will eliminate exchange rate risk. $\begin{array}{llll}\text { Listed Options }\\&\text { Strike } & \text { Puts } &\text { Calls } \\\text { Euro€62,500 } & \$ 1.25=€ 1.0 C & \$ 0.0075 \text { per } € & \$ 0.01^{ per€ } \\\text { Yen?12,500,000 } & \$ 1.00=¥ 10 C & \$ 0.0075 \text { per } ¥ 100 & 0.010^{ per ¥10 }\end{array}$

• A)Buy 16 put options on euro,sell 10 call options on yen.
• B)Buy 16 put options on euro,buy 10 call options on yen.
• C)Sell 16 call options on euro,buy 10 put options on yen.
• D)none of the options

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Definitions:

Probability .70

A statistical measure indicating that an event has a 70% chance of occurring.

Mixed Strategy Equilibrium

A concept in game theory where players use a random mixture of actions in strategic games, ensuring that no player has an incentive to deviate from their strategy given the strategies of the other players.

Company Policy

A set of rules and guidelines created by a company to outline its operations, decision-making processes, and ethical standards.

Money Value

Refers to the purchasing power of money, indicating how much goods or services a unit of money can buy.