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Compute the USD receipt

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Question - Dayton, a U.S-based manufacturer of gas turbine equipment, has just concluded negotiations for the sale of a turbine generator to a British firm for the sum of £1,000,000. The sale is concluded in March but payment will be made three months later, in June.

Assumptions

Spot exchange rate: GBP/USD 1.7640/1.8000

Three-month forward rate: GBP/USD 1.7540/1.7890

Dayton's cost of capital: 12%

U.K. three-month borrowing (lending) rate: 10% (8%) per annum.

U.S. three-month borrowing (lending) rate: 8% (6%) per annum.

June put option: £1,000,000; $1.75 strike price; 1.5% premium.

June put option: £1,000,000; $1.71 strike price; 1.0% premium.

Dayton's forecast of the spot rate in June: GBP/USD 1.7840/17980.

F0: 1.7600 F1: 1.7249

If Dayton uses 30% for future, 35% for option, and 35% for forward contract, compute the USD receipt.

Reference no: EM132593606

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