Mender Co. will be receiving 500,000 Australian dollars in 180 days. Currently, a 180-day call option with an exercise price of $.68 and a premium of $.02 is available. Also, a 180-day put option with an exercise price of $.66 and a premium of $.02 is available. Mender plans to purchase options to hedge its receivables position. Assuming that the spot rate in 180 days is $.67, what is the amount received from the currency option hedge (after considering the premium paid)?
A. $330,000
B. $332,000
C. $327,000
D. $335,000
A:
The amount received from the currency option hedge (after considering the premium paid) is $325,500.
This is calculated by taking the 500,000 Australian dollars, multiplying it by the spot rate of $0.67, and then subtracting the cost of the options ($0.02 * 500,000 = 10,000).
500,000 * 0.67 - 10,000 = 325,500.
