A Canadian importer needs 1 million U.S.dollars in September,and decides to buy a call option on the USD for September delivery.Suppose a call option on the USD with a September expiration and a strike price of 1.25 USD/CAD trades for 0.0215 CAD per call on 1 USD.If,by the September expiration date,the USD has appreciated to 1.20 USD/CAD,how much did the firm gain (in CAD) from hedging with the option,compared to remaining unhedged?
A) $11,833
B) $50,000
C) $28,500
D) $21,500
E) $33,333
Correct Answer:
Verified
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