Reference no: EM133000116

Micca Metals, Inc. is a specialty materials and metals company located in Detroit. The company specializes in specific precious metals and materials that are used in a variety of pigment applications. Micca just purchased a shipment of phosphates from Australia for AUD6,000,000 payable in six months. Six month at-the money call options on AUD6,000,000 at an exercise price of USD0.9000/AUD1 are available at a premium of 3%.

Problem 1: If the company enters into an option, the break-even exchange rate would be USD___________per AUD1.00

Problem 2: If the company enters into an option, the maximum amount they could realize if the exchange rate moves against them is USD180,000.

Problem 3: If the company enters into an option, the maximum amount they could realize if the exchange rate moves in their favor is ___________.

Option 1: USD5,220,000
Option 2: USD5,400,000
Option 3: AUD6,000,000
Option 4: USD5,580,000