Answer to Question #64080 in Other for Ahmad

Question

Millennium Publications, an American company has to pay NZD 1 million in three moths to its supplier in New Zealand. The current spot rate is USD 0.6100/NZD. The company is thinking of using option in order to reduce transaction exposure as the value of New Zealand Dollar is expected to increase when the payment due.
- Call option on NZD 1 million at exercise price of USD 0.6200/NZD: a 1.5% premium.
- Put option on NZD 1 million at exercise price of USD 0.6205/NZD: a 1% premium.
- WACC for Millennium is at 10%

Based on the information above, which option should the company choose? How much is the total cost to company if they used option market to hedge this transaction exposure. Assume the spot rate three months from now is USD 0.6300/NZD.

Answer 1

Dear Ahmad , your question requires a lot of work, which neither of our experts is ready to perform for free. We advise you to convert it to a fully qualified order and we will try to help you. Please click the link below to proceed: Submit order