Answered: Suppose a Japanese company, Matsushita,… | bartleby

International Financial Management

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter5: Currency Derivatives

Section: Chapter Questions

Problem 4ST

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Question

Suppose a Japanese company, Matsushita, has to sell Can$ 50 m sometime during the next 6 months, and would like to
lock in a minimum ¥ value. The price of a put option with a strike price of K = ¥ 230/$ is ¥ 4/$
What is the actual amount that they receive if the spot rate at the end of 3 months is 245/$?Since ST >K, the options are
worthless and Matsushita can do better by selling at the market rate of ¥ 245/$, rather than the exercise price of ¥ 230/$.
Thus, their total receipts will be
CV234/$
C¥230 / $
C¥241/$
C¥4/$

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