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You are the treasurer of Arizona Corporation and must decide how to hedge (if at all) future receivables of 350,000 Australian dollars (A$) 180 days from now. Put options are available for a premium of $.02 per unit and an exercise price of $.50 per Australian dollar. The forecasted spot rate of the Australian dollar in 180 days is:
Future Spot Rate
Probability
$.46
10%
$.48
35%
$.52
55%
What is the probability that the put option will be exercised (assuming Arizona purchased it)?
a.
10%.
b.
35%.
c.
55%.
d.
45%.
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