Question

FAB Corp. will need 280,877 Canadian dollars (C$) in 90 days to cover a payables position. Currently, a 90-day call option with an exercise price of $0.77 and a premium of $0.04 is available. Also, a 90-day put option with an exercise price of $0.72 and a premium of $0.04 is available. FAB plans to purchase options to hedge its payables position. If the spot rate in 90 days is $0.84, what is the FAB’s dollar cash outflows, assuming FAB wishes to minimize its cost (please round to a dollar)?

Answer #1

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FAB Corp. will need 200,000 Canadian dollars (C$) in 90 days to
cover a payables position. Currently, a 90-day call option with an
exercise price of $.75 and a premium of $.01 is available. Also, a
90-day put option with an exercise price of $.73 and a premium of
$.01 is available. FAB plans to purchase options to hedge its
payables position. Assuming that the spot rate in 90 days is $.78,
what is the net amount paid, assuming FAB...

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premium of $.01 is available. LKL plans to purchase options to
hedge its payable position. Assuming that the spot rate in 90 days
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lemons corp. will receive 451,000 Singapore dollars (SGD) in 60
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(think about whether this company want to exercise its call option
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Please provide explanation and work.

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