Suppose you have developed a hairbrained scheme to purchase art, mint a NFT, and then sell it for a bubbly profit. For your scheme, you need to import USD 99570.85 worth of art into Australia. You are concerned that the exchange rate might move adversely during this time. Suppose the current exchange rate is 0.704 You see the following instruments available: • A Put option on AUD with a strike price (in USD/AUD) of 0.6 with a 1.3% premium • A Call option on AUD with a strike price (in USD/AUD) of 0.88 with a 1.7% premium • A forward rate agreement with a FRA rate of 3.5% • A customized forward forward arrangement of 4% Suppose you decide to hedge with the most relevant instrument. Assume that the USD/AUD exchange rate becomes 0.45. What is the overall cost of the art purchase in AUD, including any fees? O a. 163794.04825 O b. 113148.69318 O c 165951.41667 O d. None of these options O e. 111225.16540 O f. Not enough information O g. 164656.99562

Suppose you have developed a hairbrained scheme to purchase art, mint a NFT, and then sell it for a bubbly profit. For your scheme, you need to import USD 99570.85 worth of art into Australia. You are concerned that the exchange rate might move adversely during this time. Suppose the current exchange rate is 0.704 You see the following instruments available: • A Put option on AUD with a strike price (in USD/AUD) of 0.6 with a 1.3% premium • A Call option on AUD with a strike price (in USD/AUD) of 0.88 with a 1.7% premium • A forward rate agreement with a FRA rate of 3.5% • A customized forward forward arrangement of 4% Suppose you decide to hedge with the most relevant instrument. Assume that the USD/AUD exchange rate becomes 0.45. What is the overall cost of the art purchase in AUD, including any fees? O a. 163794.04825 O b. 113148.69318 O c 165951.41667 O d. None of these options O e. 111225.16540 O f. Not enough information O g. 164656.99562

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter5: Currency Derivatives

Section: Chapter Questions

Problem 28QA

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