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17. A firm wants to use an option to hedge 12.5 million in receivables from New Zealand firms. The premium is $.03. The exercise price is $.55. If the option is exercised, what is the total amount of dollars received (after accounting for the premium paid)?

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Answer #1

Dollars received from exercising option = NZ$12.5 million x $.55 = $6,875,000

Premium paid for options = NZ$12.5 million x $.03 = $375,000

Amount of dollars received minus premium = $6,500,000

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