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Calculate the amount received from the currency option

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Mender Co. will be receiving 700,000 Australian dollars in 180 days. Currently, a 180-day call option with an exercise price of $.74and a premium of $.02 is available. Also, a 180-day put option with an exercise price of $.72 and a premium of $.02 is available. Mender plans to purchase options to hedge its receivables position. Assume that the spot rate in 180 days is $.73.

(a) Should the company use call options or put options? Why?

(b) Calculate the amount received from the currency option hedge (after considering the premium paid).

(c) Would the company have received more without hedging?

Reference no: EM132789701

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