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3. A U.S. importer has to make a euro500,000 payment to an Italian exporter in 60...

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Finance

3. A U.S. importer has to make a euro500,000 payment to anItalian exporter in 60 days. They decide to purchase a Europeancall option on euros with the following details:

• Contract size: euro250,000

• Exercise price: $1.45/euro

• Call option premium: $0.04 per euro

What is the overall profit/loss given the following future spotrates? Should the importer exercise the option in eachscenario?

A) $1.40/euro

B) $1.45/euro

C) $1.49/euro

D) $1.52/euro

Answer & Explanation Solved by verified expert
3.7 Ratings (622 Votes)
The importer has euro payables worth 500000 due in 60 days This implies that the importer will need to purchase euros after 60 days Buying a call option would allow the importer to purchase these euros    See Answer
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Transcribed Image Text

3. A U.S. importer has to make a euro500,000 payment to anItalian exporter in 60 days. They decide to purchase a Europeancall option on euros with the following details:• Contract size: euro250,000• Exercise price: $1.45/euro• Call option premium: $0.04 per euroWhat is the overall profit/loss given the following future spotrates? Should the importer exercise the option in eachscenario?A) $1.40/euroB) $1.45/euroC) $1.49/euroD) $1.52/euro

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