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Business, 10.05.2021 15:10 fraven1819

You will receive 554000 Ukraine hryvnia (UAH) in 6 months. You want to insure the amount by an option with a strike price of €0.029. The current exchange rate (UAHEUR) equals to €0.026. The premium per contract equals €7 with the contract size being 100,000 UAH. The respective effective interest rate equals 0.99%. 1. Do you buy a put or a call option to hedge the receivables?
2. Calculate the total value of all your transactions in euro if the spot rate at maturity equals €0.018, assuming that you bought the option.
3. Calculate the total value of all your transactions in euro if the spot rate at maturity equals €0.04, assuming you bought the option.
4. Is it better to hedge your position? Select the correct
a) You should hedge your position because it reduces risk.
b) You should not hedge your position because it is costly.
c) There is not enough information to make a decision.

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