A Canadian Importer Needs $500,000 U

question 107

Multiple Choice

A Canadian importer needs $500,000 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 1.20 USD/CADtrades for 0.0325 CAD per call on 1 USD.If,by the September expiration date,the USD depreciates to 1.23 USD/CAD,how much did the firm lose (in CAD) from hedging with the option,compared to remaining unhedged?

• A)$15,000
• B)$31,250
• C)$10,163
• D)$26,413
• E)$16,250

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Definitions:

Problem-Solving Research

A type of research focused on identifying solutions to specific, practical problems through systematic investigation and analysis.

Robert Siegler

A prominent psychologist known for his work on children's cognitive development, particularly in areas of mathematical understanding and strategy choice.

Balance Scale Problems

Balance scale problems involve tasks that require the understanding of weight distribution and equilibrium principles, often used as cognitive development exercises in children.

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Transforming and manipulating information in memory. Individuals think in order to reason, reflect, evaluate ideas, solve problems, and make decisions.