A Canadian Exporter Will Receive $1

question 43

Multiple Choice

A Canadian exporter will receive $1.5 million USD in September,and decides to buy a put option on the USD for September delivery.Suppose a put option on the USD with a September expiration and a strike price of 1.275 USD/CADtrades for 0.0115CAD per put on 1 USD.If,by the September expiration date,the USD has appreciated to 1.250 USD/CAD,how much did the firm lose (in CAD) from hedging with the option,compared to remaining unhedged?

• A)$0
• B)$54,750
• C)$20,250
• D)$17,250
• E)$37,500

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Definitions:

Altruism

The selfless concern for the well-being of others, characterized by acts intended to benefit or help someone without expecting anything in return.

Social Exchange Theory

A theory in social psychology that suggests human relationships are formed by the use of a subjective cost-benefit analysis and the comparison of alternatives.

Intimacy

The feeling of being close and emotionally connected to someone, involving mutual affection and trust.

Self-Disclosure

The process of disclosing one's own personal details to other people.