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An Australian MNC needs to purchase ¥5,000,000
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An Australian MNC needs to purchase ¥5,000,000. The current quoted nominal bid/ask spread for ¥ is A$0.0065-A$0.0062. How many A$ are needed to buy ¥5,000,000? A. A$ 31,000 B. A$ 32,500 C. A$ 230,769 D. A$ 769,230,769 E. A$ 806,451,613
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An Australian company has purchased currency call options to hedge a 230,000 Brazilian Real payable. The premium is A$.035 and the exercise price of the option is A$.30. If the spot rate at the time of maturity is A$.60, what is the total amount paid by the corporation if it acts rationally? A. A$146,050. B. A$69,000. C. A$60,950. D. A$138,000. E. A$77,050.
Expert Solution
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The Bid /Ask exchange rate of Yen/Dollar = 0.0065 - 0.0062
So, Number of dollars that you will need to buy Yen 5,000,000 is
= 5,000,000 * Ask price [ We consider Ask price as this is the price seller will accept to make the transactions]
= 5,000,000 * 0.0062
= $31000
The correct option is A
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The amount is computed as shown below:
= (Premium + Exercise price) x 230,000
= (A$ 0.035 + A$ 0.30) x 230,000
= A$ 0.335 x 230,000
= A$ 77,050
So, the correct answer is option E.
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