Reference no: EM131916106
1.Potter, Inc., based in Washington, exports products to a German firm and will receive payment of €220,000 in three months. On June 1, the spot rate of the euro was $1.12, and the 3-month forward rate was $1.13.
On June 1, Potter negotiated a forward contract with a bank to sell €220,000 forward in three months. The spot rate of the euro on September 1 is $1.15. Potter will receive $_______ for the euros.
2. Speculating with Currency Call Options. AMCR Corp. purchased Canadian dollar call options for speculative purposes. If these options are exercised, AMCR will immediately sell the Canadian dollars in the spot market. Each option was purchased for a premium of $.03 per unit, with an exercise price of $.75.
AMCR plans to wait until the expiration date before deciding whether to exercise the options. Of course, AMCR will exercise the options at that time only if it is feasible to do so. In the following table, fill in the net profit (or loss) per unit to AMCR Corp. based on the listed possible spot rates of the Canadian dollar on the expiration date.
| Possible Spot Rate |
Net Profit (Loss) per |
| of Canadian Dollar |
Unit to AMCR Corporation |
| on Expiration Date |
if Spot Rate Occurs |
| $0.76 |
A |
| 0.78 |
B |
| 0.8 |
C |
| 0.82 |
D |
| 0.85 |
E |
| 0.87 |
F |
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