Business, 26.11.2021 03:00 elysabrina6697

You are a U. S.-based importer of bicycles and just bought competition-style bicycles for €100,000 from Italy. You owe €100,000 to the Italian supplier in one year. You are concerned about the number of dollars you will have to pay for this purchase in one year. Suppose:

- The spot exchange rate is $1.50/€

- The forward exchange rate is $1.25/€

- U. S. interest rate is 3.00% per annum

- The interest rate in Europe is 4.00% per annum

- Call option with a strike price of $1.30/€ is available with premium of $0.10/€

- Put option with a strike price of $1.30/€ is available with premium of $0.20/€

Round your answers to two decimal places.

a. Unhedged position: Suppose you decide not to do anything. In one year, spot rate happens to be $1.50/€. What will be the total dollar cost of this purchase then? What will be the total dollar cost if spot rate happens to be $1.30/

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