a) (4pts) ThHow 2,000,000 put option contract? Three month later in June, what i
ID: 2806853 • Letter: A
Question
a) (4pts) ThHow 2,000,000 put option contract? Three month later in June, what is the company's decision on this of USS that the ll put option? How much is lll company can have? a money market to avoid the FX risk in 90 days? (Key: Calculation of amount of BP loan the company has to borrow today) b) (4pts) How does the company use 19. (6pts) The price for Big Mac in the US is $4.00 and the price in EU area is Euro 3.2. Calculate the PPP rate based on these Big Mac prices (direct quotation). If the actual market FX rate is $1.12/euro, what is your evaluation about the value of euro against US$ in the market? And what would be your prediction about the euro in the market? 20. Bonus 10 pointsExplanation / Answer
BIG Mac price in USA = $4.00
BIG Mac price in EU Area = 3.20 Euro.
Exchange rate between Euro and Dollar accoring to PPP = $4 / 3.20
= $1.25 per Euro.
Exchange rate between Euro and Dollar accoring to PPP is $1.25 per Euro.
Actual Exchnage rate between Euro and Dollar is $1.12 per Euro.
So, accoring to purchasing power parity model, Euro is undervalued against dollar and euro value in market relative to dollar should be $1.25 per euro.
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