Micca, Metals, Inc. is a specialty material and metals company located in Detroit. The company specializes in specific precious metals and materials that are used in a variety of pigment applications. Micca just purchased a shipment of phosphates from Australia for AUD6,000,000 payable in six months. Six-month at-the-money call options on AUD6,000,000 at an exercise of the price of USD0.9000AUD1 are available at a premium of 3%.
What is the break-even exchange rate?
What is the maximum amount that Micca Metals could realize if the exchange rate moves in their favor?
What is the maximum amount they could realize if the exchange rate moves against them?
What would Micca Metals expect future exchange rates to be to motivate the use of this option?
