On June 18,Burger Corporation Entered into a Firm Commitment to Purchase

question 74

Multiple Choice

On June 18,Burger Corporation entered into a firm commitment to purchase specialized equipment from the Hyabuza Trading Company for ¥80,000,000 on August 20.The exchange rate on June 18 is ¥100 = $1.To reduce the exchange rate risk that could increase the cost of the equipment in U.S.dollars,Burger pays $12,000 for a call option contract.This contract gives Burger the option to purchase ¥80,000,000 at an exchange rate of ¥100 = $1 on August 20.On August 20,the exchange rate is ¥93 = $1.How much did Burger save by purchasing the call option (answers rounded to the nearest dollar) ?

• A) $12,000
• B) $48,215
• C) $60,215
• D) Burger would have been better off not to have purchased the call option.