Expects to receive royalty payments in total

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Q. Expects to receive royalty payments totalling £1.25 million next month. It is interested in protecting these receipts against a drop in the value of the pound. It can sell 30-day pound futures at a price of $1.6513 per pound or it can buy pound put options with a strike price of $1.6612 at a premium of 2.0 cents per pound. The spot price of the pound is currently $1.6560 and the pound is expected to trade in the range of $1.6250 to $1.7010. Vilas's treasurer believes that the most likely price of the pound in 30 days will be $1.6400.

Reference no: EM13110573

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