Assume that Patton Co. will receive 100,000 New Zealand dollars (NZ$) in 180 days. Today's spot rate of the NZ$ is £0.35, and the 180-day forward rate is £0.36. A call option on NZ$ exists, with an exercise price of £0.37, a premium of £0.01, and a 180- day expiration date. A put option on NZ$ exists with an exercise price of £0.36, a premium of £0.01, and a 180-day expiration date. Patton Co. has developed the following probability distribution for the spot rate in 180 days: Possible Spot Rate in 90 Days Probability £0.30 10% £0.35 60% £0.40 30% The probability that the forward hedge will result in more U.S. dollars received than the options hedge is _______ (deduct the amount paid for the premium when estimating the U.S. dollars received on the options hedge).

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The forward hedge guarantees a rate of £0.36, while the options hedge involves a premium cost. The options hedge is beneficial only if the spot rate in 180 days is above £0.37 for the call option or below £0.36 for the put option, considering the premium paid. Given the probability distribution, the forward hedge will result in more U.S. dollars received than the options hedge unless the spot rate is £0.40 (30% probability). Therefore, in 70% of the scenarios (£0.30 with 10% probability and £0.35 with 60% probability), the forward hedge is more advantageous.

Assume That Patton Co