What is ceiling that importer has set on price of pounds

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Reference no: EM13938019

Suppose a U.S company has to pay £5million after 3 months. To edge this the importer buys a call options on the pounds, and the option premium is $0.0220/£, the strike price K = $1.50/£

(a) What is the cost incurred today?

(b) What is the ceiling that the importer has set on the price of the pounds?

(c) What is the actual amount that the importer will pay if the spot rate at the end of 3 months is $1.46/£? How will your answer change if the spot rate becomes $1.55/£

Reference no: EM13938019

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