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Compute the expected net cash ?ows

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Assume that your U.S.-based ?rm is expecting to receive 1,000,000 Australian dollars (AUD) in one year. The AUD spot rate today is $0.73. Your ?rm expects (with certainty) that the AUD spot rate will be $0.70 in a year, so it decides to avoid exchange rate risk by hedging this receivable. There are put and call options with one year to expiry that have a strike price of $0.75. The premium on both options is $0.03. The one-year forward rate exhibits a 2% premium. Compute the expected net cash ?ows received in US. dollars ?om hedging this receivable using a forward contract versus a currency option.

Reference no: EM133076071

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