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#16 - #18 A U.S. company has British pound 2 million payables in 90 days. The...

#16 - #18 A U.S. company has British pound 2 million payables in 90 days. The company decide to use option contracts to manage its FX risk from this international transaction and has the following information about the option contracts.

o A 90 day call option contract for BP 2 million with strike rate = $1.74/BP, call premium per British pound is $0.02

o A 90 day put option contract for BP 2 million with strike rate = $1.75/BP, put premium per British pound is $0.02

1. (2pts) Which option contract the company need to purchase? A. Call option B. Put option

2. (2pts) 90 days later, if the spot rate becomes $1.7900/BP, what will be the company’s decision for the option contract? A. ITM, exercise the option B. OTM, let the option expire

3. (2pts) Calculate US$ cost or US$ net revenue of the US company at the expiration date of the option based on the decision in #17.A. $3.52 millionB. $3.54 million

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