(Question 4) (Required)
UA corporation Import Division imports 100 micro chips from Yale country at Yen 100 per machine (Yen
10,000 in total: contracted at Yen). UA's C.F.O. asks you to hedge importing prices against foreign
currency fluctuations. Current spot exchange rate is $1 = Yen 100. and the following is the
price of derivatives.
UB Country (U.S.A.)
Call(Yen 100, K = $1) = $0.05
Put(Yen 100, K = $1) = $0.02
Yale Country(Japan)
Call($1, K = Yen 100) = Yen 2
Put($1, K= Yen100) = Yen 2
You have to consider the cost of options !!!
A) If UB wants to use Call option, which Call option to buy or sell and net cash-flow at maturity?
B) If UB wants to use Put option, which Put option to buy or sell and net cash-flow at maturity?
********Sample Answer********
Buy or Sell
UB or Yale
$ to receive/pay (Exactly or At least or At most)
BUY
UB CALL
EXACTLY pay $777
(Sample Answer)
(Answers)
(A)Buy or Sell
UB or Yale
$ to receive/pay (Exactly or At least or At most)
Call Option
(B)Buy or Sell
UB or Yale
$ to receive/pay (Exactly or At least or At most)
Put Option
2