Spectrum (a USA based company) has purchased currency put options to hedge a $100,000 Canadian dollar ($CAD) receivable

Finance Aug 15, 2020

Spectrum (a USA based company) has purchased currency put options to hedge a $100,000 Canadian dollar ($CAD) receivable. The exercise price of the option is $0.75 and The premium is $0.01. The spot rate at the time of maturity is $0.85. What is the net amount received by the Spectrum if it acts rationally?

Expert Solution

Spectrum purchased = 100000

The spot rate at the time of maturity = $0.85

Spot rate of Canadian dollar= 85000

Premium = 0.01

Premium of Canadian dollar = 100000*0.1

Premium of Canadian dollar = 1000

Net amount received = $84000 (85000 - 1000).

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