A Japanese EXPORTER has a €1,000,000 receivable due in one year.
Listed Options
|
Strike
|
Puts
|
Calls
|
€62,500
|
$1.25 = €1.00
|
$0.0085 per €
|
$0.02 per €
|
¥12,500,000
|
$1.00 = ¥100
|
$0.0085 per ¥100
|
$0.02 per ¥100
|
(a) Detail the hedging strategy with options.
(b) Estimate the cost today of an options strategy that will eliminate exchange rate risk.