1. Your firm has just completed a sale to a large customer in Paris. The invoice is for EUR 5,000,000 and the credit terms are 90 days. The spot exchange rate for the euro is $1.1467/EUR. The euros will be sold for USD when received. Which of the following is the best choice to hedge the firm’s exchange rate risk?
A. Purchase a 3-month put option with a strike price of $1.1700 and a premium of $0.0364/EUR.
B. Purchase a 3-month call option with a strike price of $1.1600 and a premium of $0.0217/EUR.
C. Purchase a 1-month call option with a strike price of $1.1350 and a premium of $0.00169/EUR.
D. Purchase a 3-month put option with a strike price of $1.1400 and a premium of $0.0105/EUR.
2. Today’s spot exchange rate for the Japanese yen is JPY 112.64/USD and yesterday’s rate was JPY 112.53/USD. What is the continuously compounded rate of return for the day?
A. 0.00136%
B. 0.09770%
C. 1.21614%
D. 0.00078%