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Company which uses put option to hedge

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Reference no: EM131910379

The U.S. three-month interest rate (unannualized) is 1%. The Canadian three-month interest rate (unannualized) is 4%. A put option with a three-month expiration date on Canadian dollars is available for a premium of $0.02 and a strike price of $0.62. The spot rate of the Canadian dollar is $0.65. Assume that you believe in International Fisher Effect (IFE). Forecast the dollar amount of your profit or loss from buying a put option contract specifying C$100,000. Forecasr the USD received by A&M company which uses the put option to hedge against its 3 month receivables of C$ 100,000.

Reference no: EM131910379

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