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Question
An American firm sells farm equipment to a British company for ₤250,000 to be paid in 180 days. The current exchange rate is $1.98/₤. The exporter hedges its exchange rate risk by buying a put option on ₤250,000 with the strike exchange rate of $1.92/₤. The put expiring in 180 days cost the firm $5,000. What is the dollar amount the American firm will net on this transaction if the exchange rate is $1.96/₤ in 180 days?a. $495,000
b. $490,000
c. $485,000
d. $480,000
e. $475,000
Answer
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