# Due to your import of wine fro

Due to your import of wine from France, you have an account payable in three months. You desire to hedge this account using the options market. The following info (including the table below) are available to you. Calculate the outcome of this option if you end up executing it at the end of the three months.

*Today’s date = March 1, 2020

*Spot rate on the above date = \$1.1450/euro

*Account payable amount = euro 48,000.00

*Commercial interest rate on US dollar = 6 percent

*Assume partial option contracts can be bought or sold. (This is not realistic).

*In case you are not familiar, the strike prices are in 100 USD cents

Euro FX (CME)

125,000 euros; cents per euro

 Calls Calls Calls Puts Puts Puts Strike Price Apr May Jun Apr May Jun 11350 1.67 2.25 2.67 0.76 1.34 1.77 11400 1.38 1.98 2.41 0.97 1.57 2.00 11450 1.11 1.72 2.15 1.20 1.81 2.24 11500 0.89 1.49 1.93 1.48 – 2.52 11550 0.71 1.29 1.72 – – – 11600 0.56 1.10 1.53 2.15 – 3.11

1.Do you buy a May call or a May put (insert call or put)

2.If you select the May strike price of \$1,14 and execute this options, what would be your outcome? :

3.If you select the May strike price of \$1,14, what would be your options premium cost at the point of entering into the options?

4.Assuming that you execute this option, which May strike price is the best? Enter your selected strike price in dollar

5.If at the end of the 3rd month the spot rate would be \$1.12, what do you do with this option?

a.I will execute it

b.I will let it expire

c.I will be indifferent.

d.None of the answers in this group are relevant.

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