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Today, the spot rate of the euro is $1.20. The one-year forward rate is $1.16. A one -year call option on euros exists with a premium of $.04 per unit and an exercise price of $1.17. You think the

Today, the spot rate of the euro is $1.20. The one-year forward rate is $1.16. A one -year call option on euros exists with a premium of $.04 per unit and an exercise price of $1.17. You think the spot rate is the best forecast of future spot rates. You will need to pay 10 million euros in one year. Determine whether a money market hedge or a call option hedge would be more appropriate to hedge your payables.

 

May 08 2021 View more View Less

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