Tektronix can also choose to hedge this 80,000,000 payable using an option. The rates available...
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Tektronix can also choose to hedge this 80,000,000 payable using an option. The rates available to buy and sell yen in the options market as follows:
Type of Option Strike Price Premium Cost
Six month call option $0.0145/ 1.50% Six month put option $0.0125/ 1.75%
Six-month yen interest rate 1.00% 1.25% p.a.
Six-month U.S. interest rate (note: no bid/asks given) 4.00% p.a.
Suppose Tektronix chooses to hedge with the option. Six months have passed, and the spot exchange rate is now $0.0148/. In this case, what is the total cost to Tektronix? (Reminder: The bid-ask spot exchange rates at the beginning of the problem (six months earlier) were $0.0130/ $0.0135/, and the six-month U.S. dollar interest rate is 4% per annum.)
What is the cost of the option Premium today if Tektronix chooses to buy the option?
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