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. A 90 day call option contract for BP 2 million with strike rate = $1.74/BP, call premium per British pound is $0.02 A 90 day put option contract for BP 2 million with strike rate = $1.75/BP, put premium per British pound is $0.02 Calculate US$ cost or US$ net revenue of the US company at the expiration date of the option based on the decision O $3.54 million O $3.56 million $3.48 million O $3.52 million

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Question
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.
A 90 day call option contract for BP 2 million with strike rate = $1.74/BP, call premium per British pound is $0.02
A 90 day put option contract for BP 2 million with strike rate = $1.75/BP, put premium per British pound is $0.02
Calculate US$ cost or US$ net revenue of the US company at the expiration date of the option based on the decision
O $3.54 million
O $3.56 million
$3.48 million
O $3.52 million
Transcribed Image Text: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. A 90 day call option contract for BP 2 million with strike rate = $1.74/BP, call premium per British pound is $0.02 A 90 day put option contract for BP 2 million with strike rate = $1.75/BP, put premium per British pound is $0.02 Calculate US$ cost or US$ net revenue of the US company at the expiration date of the option based on the decision O $3.54 million O $3.56 million $3.48 million O $3.52 million
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