A U.S. firm has sold an Italian firm €1,000,000 worth of product. In one year th

Question

A U.S. firm has sold an Italian firm €1,000,000 worth of product. In one year the U.S. firm gets paid. To hedge, the U.S. firm bought put options on the euro with a strike price of $1.65. They paid an option premium $0.01 per euro. If at maturity, the exchange rate is $1.60,
Answer
Question 5 answers
the firm will realize $1,145,000 on the sale net of the cost of hedging.
the firm will realize $1,150,000 on the sale net of the cost of hedging.
the firm will realize $1,140,000 on the sale net of the cost of hedging.
none of the above

Explanation / Answer

A U.S. firm has sold an Italian firm €1,000,000 worth of product. In one year the U.S. firm gets paid. To hedge, the U.S. firm bought put options on the euro with a strike price of $1.65. They paid an option premium $0.01 per euro. If at maturity, the exchange rate is $1.60,
Answer
Question 5 answers
the firm will realize $1,145,000 on the sale net of the cost of hedging.
the firm will realize $1,150,000 on the sale net of the cost of hedging.
the firm will realize $1,140,000 on the sale net of the cost of hedging.
none of the above

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