FAB Corporation Will Need 200,000 Canadian Dollars (C$) in 90

FAB Corporation will need 200,000 Canadian dollars (C$) in 90 days to cover a payable position. Currently, a 90-day call option with an exercise price of $.75 and a premium of $.01 is available. Also, a 90-day put option with an exercise price of $.73 and a premium of $.01 is available. FAB plans to purchase options to hedge its payable position. Assuming that the spot rate in 90 days is $.71, what is the net amount paid, assuming FAB wishes to minimize its cost?

A) $144,000.
B) $148,000.
C) $152,000.
D) $150,000.

Correct Answer:

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