Wesfarmers has developed the following probability distribution for the spot rate of the Indian rupee (INR) against the Australian dollar (A$) in six months to buy call options on INR1.50 million with an exercise price of A$0.3169 and a premium of A$0.0383.
Wesfarmers has developed the following probability distribution for the spot rate of the Indian rupee (INR) against the Australian dollar (A$) in six months to buy call options on INR1.50 million with an exercise price of A$0.3169 and a premium of A$0.0383.
Chapter10: Measuring Exposure To Exchange Rate Fluctuations
Section: Chapter Questions
Problem 33QA
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Wesfarmers has developed the following probability distribution for the spot rate of the Indian rupee (INR) against the Australian dollar (A$) in six months to buy call options on INR1.50 million with an exercise price of A$0.3169 and a premium of A$0.0383.
- A$0.2406 [39 per cent probability]
- A$0.4580 [31 per cent probability]
- A$0.5743 [(100-39-31) per cent probability]
What is the expected value of the cash to be paid in A$ for the call option hedge?
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