A Japanese exporter has a €1,000,000 receivable due in one year.Detail a strategy using options that will eliminate exchange rate risk. $\begin{array}{llll}
\text { Listed Options }\
&\text { Strike } & \text { Puts } &\text { Calls } \
\text { Euro€62,500 } & \$ 1.25=€ 1.0 C & \$ 0.0075 \text { per } € & \$ 0.01^{ per€ } \
\text { Yen?12,500,000 } & \$ 1.00=¥ 10 C & \$ 0.0075 \text { per } ¥ 100 & 0.010^{ per ¥10 }
\end{array}$
A)Buy 16 put options on euro,sell 10 call options on yen.
B)Buy 16 put options on euro,buy 10 call options on yen.
C)Sell 16 call options on euro,buy 10 put options on yen.
D)none of the options

Question

A Japanese exporter has a €1,000,000 receivable due in one year.Detail a strategy using options that will eliminate exchange rate risk. $\begin{array}{llll}
\text { Listed Options }\
&\text { Strike } & \text { Puts }  &\text { Calls }  \
\text { Euro€62,500 } & \$ 1.25=€ 1.0 C & \$ 0.0075 \text { per } € & \$ 0.01^{ per€ } \
\text { Yen?12,500,000 } & \$ 1.00=¥ 10 C & \$ 0.0075 \text { per } ¥ 100 & 0.010^{ per ¥10 }
\end{array}$
A)Buy 16 put options on euro,sell 10 call options on yen.
B)Buy 16 put options on euro,buy 10 call options on yen.
C)Sell 16 call options on euro,buy 10 put options on yen.
D)none of the options

Quizplus · Accepted Answer

To eliminate exchange rate risk, the Japanese exporter should buy put options on the euro to protect against the euro depreciating, and buy call options on the yen to protect against the yen appreciating. This strategy ensures that the exporter can sell euros and buy yen at favorable rates, regardless of market movements.

A Japanese Exporter Has a €1,000,000 Receivable Due in One