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:

The 90-day forward rate of the Australian dollar is $.50.

What is the probability that the put option will be exercised (assuming Arizona purchased it)?

Question

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:

The 90-day forward rate of the Australian dollar is $.50.

What is the probability that the put option will be exercised (assuming Arizona purchased it) ?

The 90-day forward rate of the Australian dollar is $.50.

What is the probability that the put option will be exercised (assuming Arizona purchased it)?

Quizplus · Accepted Answer

The Answer of 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:

The 90-day forward rate of the Australian dollar is $.50.

What is the probability that the put option will be exercised (assuming Arizona purchased it)?

You Are the Treasurer of Arizona Corp