Au. s. corporation has purchased currency put options to hedge a 100,000 canadian dollar (c$) receivable. the premium is $.02 per unit and the exercise price of the option is $.94. if the spot rate at the time of maturity is $.99, what is the net amount received by the corporation if it acts rationally?

$97,000      

Explanation:

Data provided in the question:

Receivable amount = 100,000 Canadian dollar

Premium per unit = $0.02

Exercise price of put option = $0.94

Spot rate at maturity = $0.99

Now,

Dollars received from selling Canadian dollars in the spot market

= Receivables amount  × Spot rate

= $100,000 × $0.99

= $99,000

Premium paid for options = Receivable amount  × Premium per unit

= $100,000 × $0.02

= $2000

Therefore,

The net amount received by the corporation if it acts rationally

= Dollars received from selling Canadian dollars - Premium paid

= $99,000 - $2000

= $97,000      

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