A Call Option Exists on British Pounds with an Exercise

question 27

Multiple Choice

A call option exists on British pounds with an exercise price of $1.60, a 90-day expiration date, and a premium of $.03 per unit. A put option exists on British pounds with an exercise price of $1.60, a 90-day expiration date, and a premium of $.02 per unit. You plan to purchase options to cover your future receivables of 700,000 pounds in 90 days. You will exercise the option in 90 days (if at all) . You expect the spot rate of the pound to be $1.57 in 90 days. Determine the amount of dollars to be received, after deducting payment for the option premium.

• A) $1,169,000.
• B) $1,099,000.
• C) $1,106,000.
• D) $1,143,100.
• E) $1,134,000.

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Definitions:

Property, Plant, and Equipment

Long-term assets, including land, buildings, machinery, and vehicles, used in the operation of a business.

Standard Cost Variances

The differences between the expected (standard) costs and the actual costs incurred for materials, labor, and overhead during a period.

Selling and Administrative Expenses

Overhead costs associated with the general operation of a company and the selling of goods or services, not directly tied to production.

Standard Cost

A predetermined cost of manufacturing, servicing, or marketing an item, which is often used for budgeting and performance evaluation.