ABC Inc., a U.S. firm, will require £ 600,000 in 6 months and is evaluating different strategies to hedge against currency risk. The available…
CA Final · Advanced Financial Management · MTP · November 2026
ABC Inc., a U.S. firm, will require £ 600,000 in 6 months and is evaluating different strategies to hedge against currency risk. The available market data is as follows:Current Spot Rate: 1 £ = $ 2.506-months Forward Rate: 1 £ = $ 2.45Interest Rates: UK (per annuam): Deposit Rate: 9.00% Borrowing Rate: 10.00% US (per annuam): Deposit Rate: 10% Borrowing Rate: 11.00% Option Contract: Call option available on £, expiring in 6 months with: Exercise price: $ 2.46 Premium: $ 0.05 ABC Inc. has forecasted the following probabilities for spot rates after 6 months: Spot Rate Probability $ 2.39 25% $ 2.44 60% $ 2.56 15% From the information given above, choose the correct answer to the following questions:
Suggested Answer and Working Notes:
Correct Answer: Option (B)
Short in £
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