Assume That Jones Co The Probability That the Forward Hedge Will Result in a Dollars

question 8

Multiple Choice

Assume that Jones Co. will need to purchase 100,000 Singapore dollars (S$) in 180 days. Today's spot rate of the S$ is $.50, and the 180-day forward rate is $.53. A call option on S$ exists, with an exercise price of $.52, a premium of $.02, and a 180-day expiration date. A put option on S$ exists, with an exercise price of $.51, a premium of $.02, and a 180-day expiration date. Jones has developed the following probability distribution for the spot rate in 180 days:
$$\begin{array}{l}\text { Passible spot Fate }\\\begin{array} { c c } \text { in 90 D.4. } & \text { Probrailit } \\\$ 48 & 10 \% \\\$53 & 60 \% \\\$.55 & 30 \%\end{array}\end{array}$$
The probability that the forward hedge will result in a higher payment than the options hedge is ____ (include the amount paid for the premium when estimating the U.S. dollars required for the options hedge) .

• A) 0%
• B) 10%
• C) 30%
• D) 40%
• E) 70%

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Definitions:

Supplies

Items that are used in the day-to-day operations of a business, often categorized as a current asset on the balance sheet.

Income Summary

The income summary account is used in accounting to transfer revenue and expense account balances to determine the net income or loss for a given period before closing them to the retained earnings account.

Owner's Capital

The amount of money and assets invested in a business by its owner, representing the owner's claim against the company's assets.

Operating Cycle

The operating cycle, also known as the cash conversion cycle, is the time it takes for a company to purchase inventory, sell products or services, and collect the cash from these transactions.