In June 2016,the spot exchange rate for the British Pound was $1.4255/£ .Suppose that at the same time Luther Industries entered into a contract to purchase goods with a price of £400,000 to be delivered in one year.There is a one-year option call contract available to Luther which will allow the company to purchase £10,000 for $1.50/£.If Luther purchases 40 option contracts,and the spot rate at the time the contract is due is $1.8725/£,how much will Luther pay for the goods?
A)$570,200.00
B)$266,666.70
C)$600,000.00
D)$749,000.00

Question

Quizplus · Accepted Answer

Luther will exercise the option contracts to purchase £400,000 at $1.50/£, resulting in a total payment of $600,000.

In June 2016,the Spot Exchange Rate for the British Pound