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Profit by hedging transactions

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A U.S. firm exports machine tools a French heavy industry firm. The U.S. firm will receive payment of €1,000,000 in one year. The U.S. firm has decided to hedge this transaction by purchasing a put option on the euro with a strike price of $1.68/€1. The cost of this put option was $0.02 per euro. Suppose the spot rate at maturity is $1.60/€1. How much will the U.S. firm profit by hedging this transactions? Assume an annual risk-free interest rate of 5.0%.

Reference no: EM132398394

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