You are the treasurer of Arizona Corp. and must decide how to hedge (if at all) future receivables of 350,000 Australian dollars (A$) 180 days from now. Put options are available for a premium of $.02 per unit and an exercise price of $.50 per Australian dollar. The forecasted spot rate of the Australian dollar in 180 days is:

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Business

Peyton Proctor

14 April, 11:53

You are the treasurer of Arizona Corp. and must decide how to hedge (if at all) future receivables of 350,000 Australian dollars (A$) 180 days from now. Put options are available for a premium of $.02 per unit and an exercise price of $.50 per Australian dollar. The forecasted spot rate of the Australian dollar in 180 days is:

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Answers (1)

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Augustus Holder · Answer 1

50%

Explanation:

The computation of the probability for put option will be exercised is shown below:

She will exercise at the time when the exercise price i. e $.50 is bigger than the future spot price i. e (20% + 30% = 50%)

So in this case the probability should be 50%

Hence, the correct answer is option c.

All other information which is given is not relevant. Hence, ignored it