Decides to use a range forward contract

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The USD/euro exchange rate is 1.3000. The exchange rate volatility is 15%. A US company will have to pay 1 million euros in three months. The euro and USD risk-free rates are 5% and 4%, respectively. The company decides to use a range forward contract with the lower strike equal to 1.2500.

(a) What should the higher strike be to create a zero-cost contract?

(b) What position in calls and puts should the company take

Reference no: EM13724412

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Decides to use a range forward contract : The USD/euro exchange rate is 1.3000. The exchange rate volatility is 15%. A US company will have to pay 1 million euros in three months. The euro and USD risk-free rates are 5% and 4%, respectively. The company decides to use a range forward cont..

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