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Exercise the option versus paying for the tv

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Reference no: EM133113590

You are planning to buy a giant Xiaomi television for ¥2,412 directly from the company in China on its release date 6 months in the future. Suppose you secure a call option to buy Chinese Yuan at a striking price of ¥6.57/$. The premium rate is 0.046 US cents per Yuan.

Assume that you bought the call option. When the release date comes, the spot exchange rate is ¥7/$. How much better off (in terms of US Dollars) are you AT THE MARGIN if you exercise the option versus paying for the TV by exchanging your money on the spot market on the release date? Enter a negative number if you're worse off. Round to two decimal places.

Would you have been better off having never purchased the option? Why or why not?

Reference no: EM133113590

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