Multinational Finance Jalepeno Corp must sell Peso 10,000,000 on Dec 22, 2017. O
ID: 2803903 • Letter: M
Question
Multinational Finance
Jalepeno Corp must sell Peso 10,000,000 on Dec 22, 2017. On september 25, 2017 Jalepeno corp baught a put option on on peso 10,000,000 with an exercise prices of peso 18.0/$ and the expiration date of January 20, 2018. The option permium is $0.001 per Mexican peso. There is brokerage commision of $12 for each contract of Peso 250,000.
The spot rate on the date when jalepeno must sell 10,000,000 turns out to be peso 20.0/$. On this date, the put option is selling for $0.005 per Mexican peso.
What is the actual dollar amount jalepeno recieves from sale of peso 10,000,000?
Explanation / Answer
Number of Option Contracts Required= 10,000,000/250,000=40
Option Premium Paid =10,000,000×0.001=10,000 USD
Brokerage Cost= 40×12=480 USD
Total Option Cost= 10,000+480=10,480 USD
Selling Value of Options: 10,000,000×0.005= 50,000 USD
Therefore Profit from Options:
50,000-10,480=39,520 USD
Value of 10,000,000 Peso in Terms of $ when rate is 20/$=10,000,000/20=500,000 $
Total $ Amount that Jalepeno receives is:500,000+39,520=$ 539,520
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