A US Corporation Has Purchased Currency Call Options to Hedge a a 70,000

question 115

Multiple Choice

A U.S. corporation has purchased currency call options to hedge a 70,000 pound (£) payable. The premium is $.02 and the exercise price of the option is $.50. If the spot rate at the time of maturity is $.65, what is the total amount paid by the corporation if it acts rationally?

• A) $33,600
• B) $46,900
• C) $44,100
• D) $36,400

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Definitions:

Period End Assets

The total value of all assets owned by a company at the end of a given financial reporting period.

Retail Method

An inventory valuation method used in retail, estimating the ending inventory value by applying a cost-to-retail percentage to the sales at retail.

Cost Ratio

A measure used to evaluate the efficiency and profitability of a company, calculated as the cost of goods sold divided by net sales.

Ending Inventory

The value of goods available for sale at the end of an accounting period, calculated for cost of goods sold and financial reporting purposes.