(Solution Document) PWG (a U. based firm) negotiate a conditional currency put options with a bank t


PWG (a U.S. based firm) negotiate a conditional currency put options with a bank to hedge its accounts receivable of 10 million euros due on March 31. PWG will only exercise its option on the due date. The terms of the conditional currency put options are as follows:

K (exercise price) = $1.08 per euro, Trigger = $1.12 per euro, premium = $0.05 per eruo, expiration date = March 31.


If the spot rate on the due date, i.e., March 31, is $1.10 per euro, what is the amount of U.S. dollar PWG expect to receive for its 10 million euros?                                     

$11.00 million.


$10.50 million.


$10.30 million.


$10.80 million.

 







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