Calculate the net gain on the hedged position

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Reference no: EM131814724

Firm USA puts in a bid of 1 million (British Pounds) on a property in England. If the bid is acce... Edit question Firm USA puts in a bid of 1 million (British Pounds) on a property in England. If the bid is accepted, the firm will have to pay 1 million (British Pounds) in 6 months. Current spot rate: 1 British Pounds=$1.4 Assume the firm enters into a long position on the following at- the- money call option: Contract size: 31.250 (British Pounds) Exercise price: $1.4 Option Premium: $0.05 Expiration: on a date after 6 months from now The call position contains 32 contracts. Assume that after 6 months, the pound appreciates in value to 1 British Pound=$1.7, and the call premium increases to $.25. Calculate the net gain(loss) on the hedged position if the bid is accepted. (Please explain this problem in detail & show work)

Reference no: EM131814724

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