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QUESTION
You have a 1 million payable due in 3 months.
You have a £1 million payable due in 3 months. Show on a chart
- a) The dollar cost of the unhedged payable as a function of the spot exchange rate 3 months from now
- b) The profit (loss) from a 3-month £1 million call option with a strike price of $1.75/£ and a premium of $0.40/£.
- c) Your total cash flow 3 months from now
- d) What would be your total cash flow if you hedged with a forward contract. Assume that the forward price is also $1.75/£
Can you show me how to solve this step by step?
