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What risk is sumito subjecting

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Sumito, a Japanese exporter, wishes to hedge its $15 million in dollar receivables coming due in 60 days. In order to reduce its net cost of hedging to zero, however, sumito sells a 60-day dollar call option for $15 million with a strike price of 198/$ and uses the premium of $314,000 to buy a 60-day $15 million put option at a strike price of Y90/$. a. Graph the payoff on Sumito's hedged position over the range V80/S-V110/$. What risk is Sumito subjecting itself to with this option hedge?

Reference no: EM133110272

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