Calculate apex gains and losses on call option position

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Question - Apex Corporation must pay its Japanese supplier ¥125 million in three months. It is thinking of buying 20-yen call options (contract size is ¥6.25 million) at a strike price of $0.00800 to protect against the risk of a rising yen. The premium is 0.015 cents per yen.

Alternatively, Apex could buy 10 three-month yen futures contracts (contract size is ¥12.5 million) at a price of $0.007940 per yen. The current spot rate is ¥1 = $0.007823. Suppose Apex's treasurer believes that the most likely value for the yen in 90 days is $0.007900, but the yen's range could be as high as $0.008400 or as low as $0.007500.

Required - Calculate Apex's gains and losses on the call option position and the futures position within the range of expected prices. Graph your results (a rough sketch is OK). Ignore transaction costs and margins.

Reference no: EM133170173

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