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Alcoa has DKr 3 million receivable due in 6 months. The following information on Dkr options...

Alcoa has DKr 3 million receivable due in 6 months. The following information on Dkr options are available: 6-month put option with a strike price of $.1745 is priced at $0.004 and a 6-month call option with a strike price of $0.1750 is priced at $0.005. If Alcoa executes options to hedge, what value for receivables it can lock in?

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Answer #1

Alcoa has Dkr 3 million receivable due in 6 months. So it need to sell DKr and want to lock its sale price using Hedging.

Put option is right to sell at strike price. So Put option will be used to hedge the receivables.

Strike price of put option 1 DKr = $0.1745

It means he will have right to sell Dkr at $0.1745.

So, lock-in value or hedged value of 3 million DKr = 0.1745 * 3000000

= $523,500

Value of receivables locked in is $523,500.

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