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What is estimated dollar cash outflow of currency call hedge

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Question - You are the treasurer of Montana Corp. and must decide how to hedge (if at all) future payables of 1 million Japanese yen 90 days from now. Call options are available with a premium of $.0004 per unit and an exercise price of $.01040 per Japanese yen. The forecasted spot rate of the Japanese yen in 90 days is $0.01043 with probability 30%, $0.01042 with probability 25%, $0.01039 with probability 25%, and $0.01038 with probability 20%. What is the probability that the call option will be exercised? What is the estimated dollar cash outflows of currency call hedge?

a. 45%; $10,414

b. 55%; $10,793.5

c. 55%; $10,393.5

d. 45%; $10,814

Reference no: EM132520065

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