Task 8-1 (9 points) You are a broker for frozen seafood products for Choyce Products....
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Task 8-1 (9 points) You are a broker for frozen seafood products for Choyce Products. You just signed a deal with a Belgian distributor. Under the terms of the contract, in one year you will deliver 4,000 kilograms of frozen king crab for 100,000 euros. Your cost for obtaining the king crab is $110000. All cash flows occur in exactly one year. The following information is given: Quantity of crab (kg) 4000 Selling price in euros 100000 Cost in dollars 110000 Forward rate (dollar/euro) 1.25 Strike price dollar per 1.25 euro Option premium per euro 0.10 Assume that the future rate in one year is $1.03/. Determine the profits/losses for the following strategies: (a) Unhedged position The profit/loss is $ . (round to full $, if loss enter"-" (minus value)) (b) Hedging with a forward contract as stated above The profit/loss is $ (round to full $, if loss enter"-" (minus value)) (c) Hedging with an option as stated above If you use an option to hedge, the profit/loss is $ (round to full $, if loss enter"-" (minus value))
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