A Canadian Importer Needs 10 Million U

question 78

Multiple Choice

A Canadian importer needs 10 million U.S.dollars in September,and decides to buy a call option on the USD for September delivery.Suppose a call option on the USD with a September expiration and a strike price of 1.30 USD/CAD trades for 0.0515 CAD per call on 1 USD.If,by the September expiration date,the USD has appreciated to 1.25 USD/CAD,how much did the firm lose (in CAD) from hedging with the option,compared to remaining unhedged?

• A)-$15,000
• B)-$207,308
• C)$0
• D)-$307,692
• E)-$500,000

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Definitions:

Common Culture

Refers to the shared set of beliefs, values, customs, and practices that characterizes a group or society.

Societal Values

The principles and beliefs that are held in high esteem by a society or community, guiding behavior and judgment.

Postmodernity

A cultural, intellectual, or artistic state lacking a clear central hierarchy or end-point, often associated with skepticism of grand narratives and ideologies.

Erosion of Authority

The gradual loss of respect, influence, or power of an individual or institution, leading to decreased effectiveness or control.