JCrew Inc. (a U.S. based firm) negotiates a conditional currency put options with a bank to hedge its accounts receivabl
Posted: Sat Nov 27, 2021 5:20 pm
JCrew Inc. (a U.S. based firm) negotiates a conditional currency
put options with a bank to hedge its accounts receivable of 2
million euros due on October 31. JCrew Inc. will only exercise its
option on the due date. The terms of the conditional currency put
options are as follows:
K (exercise price) = $1.12 per euro, Trigger = $1.14 per euro,
premium = $0.03 per euro, expiration date = October 31.
If the spot rate on the due date, i.e., October 31, is $1.13 per
euro, what is the amount of U.S. dollar JCrew expects to receive
for its 2 million euros?
put options with a bank to hedge its accounts receivable of 2
million euros due on October 31. JCrew Inc. will only exercise its
option on the due date. The terms of the conditional currency put
options are as follows:
K (exercise price) = $1.12 per euro, Trigger = $1.14 per euro,
premium = $0.03 per euro, expiration date = October 31.
If the spot rate on the due date, i.e., October 31, is $1.13 per
euro, what is the amount of U.S. dollar JCrew expects to receive
for its 2 million euros?