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U.S. firm expects a payable of €500,000 in six months. Current exchange rate is $1.35/€. Firm will have to buy euros in six months. Consider 3 possible spot prices in six months.
- $1.15/€
- $1.36/€
- $1.52/€
A) What kind of option, put or call, is appropriate to hedge with? (Assume an exercise price of $1.35/€)
B) Which scenario(s) will the firm exercise their option?
C) Which one scenario does the firm hopes will happen?
D) In that one scenario, what is the option worth at maturity?
which criterion do you feel is most reliable to recommend to management, and on what basis to you make your recommendation?
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Your uncle has $300,000 invested at 7.5%, and he now wants to retire. He wants to withdraw $35,000 at the end of each year, beginning at the end of this year. He also wants to have $25,000 left to give you when he ceases to withdraw funds from the ac..
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