Reference no: EM131989806
Today, a U.S. importer places an order for machine tools that will arrive in Houston in 60 days, when he must pay 2,000,000 euros to the German exporter. Assume that the price of at-the-money, 60-days, euro calls is $0.04, and the price of 60-days, at-the-money euro puts is $0.05. Please note that the spot rate today is $1.39. All prices are per euro.
1) The U.S. importer is short euros.
A) TRUE
B) FALSE.
2) If he does not hedge payables, he will suffer a loss if the dollar depreciates.
A) TRUE
B) FALSE.
3) The U.S. importer could hedge by buying euro puts.
A) TRUE
B) FALSE.
4) The U.S. importer could hedge by buying euro futures.
A) TRUE
B) FALSE.
5) The U.S. importer could hedge by buying euro calls.
A) TRUE
B) FALSE.
6) The U.S. importer could hedge by entering into a 60-day forward contract to purchase dollars with euros.
A) TRUE
B) FALSE.
7) The U.S. importer could hedge by entering into a 60-day forward contract to purchase euros with dollars.
A) TRUE
B) FALSE.
8) If he hedges with options, he will
A) buy four calls
B) buy six puts
C) buy 16 calls
D) sell six calls
E) buy 16 puts