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VBN's home currency is the V$. On 1 January, VBN must make a payment of C$2 million on 31 March of that same year.
On 1 January the spot exchange rate was V$1 = C$0.4.
On 1 January VBN paid $180,000 for a call option to buy C$2 million for V$5.5 million on 31 March. VBN's cost of borrowing was 8% per year.
On 31 March the spot rate was V$1 = C$0.45.
What was the total cost, including the cost of the option, of settling the payable?
Suggested Answer: B, C, D
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33 comments · newest first
BR
Brock
11 months ago
Not sure about these calculations, feels off.
KA
Katina
11 months ago
Definitely going with option A, seems right to me!
SA
Salley
11 months ago
Wait, did the spot rate really change that much?
TR
Trinidad
12 months ago
I think the total cost is around V$5.5 million.
OL
Olga
12 months ago
The call option cost V$180,000.
SE
Selma
1 year ago
I feel like I might have mixed up the calculations for the option and the borrowing cost. I need to double-check how those interact with the final payment.
VA
Vallie
1 year ago
If I recall correctly, we need to convert the C$2 million at the spot rate on 31 March, then add the option cost. I hope I got that right!
KE
Kendra
1 year ago
I think the total cost should include the option premium and the amount paid for the currency at the spot rate, but I’m a bit confused about how to calculate the final figure.
BL
Blair
1 year ago
I remember we practiced a similar question about options and exchange rates, but I'm not sure how to factor in the cost of borrowing here.
EL
Elroy
1 year ago
This seems pretty straightforward. I just need to do the math correctly and I'm confident I can get the right answer.
BR
Brent
1 year ago
I think I've got a good handle on this. I'll start by calculating the cost of the payable on 31 March, then add in the option cost. Should be straightforward.
EA
Earleen
1 year ago
Hmm, not sure I fully understand how to incorporate the call option into the total cost. I'll have to review the details carefully.
RE
Rebbeca
1 year ago
This looks like a tricky foreign exchange question. I'll need to carefully work through the calculations to get the right answer.
IR
Irene
1 year ago
Okay, let me think this through step-by-step. I need to figure out the total cost of settling the payable, including the option cost.
DO
Donte
1 year ago
I'm a little confused by the options. Does GDS really help with database failovers without requiring Data Guard Broker? I'll need to double-check that detail before answering.
JE
Jesusita
1 year ago
I wish they'd ask about something more exciting, like the latest celebrity gossip. This is just boring finance stuff.
ME
Melinda
1 year ago
I'm pretty sure it's C) V$4.444 million.
OR
Ora
1 year ago
No, I believe it's B) V$5.684 million.
WI
Willow
1 year ago
I think the answer is A) V$4.628 million.
ST
Stephanie
1 year ago
Okay, let's see... I just need to crunch the numbers and figure out the best option. No biggie, right? *sweats profusely*
NI
Nicholle
1 year ago
Ha! This is like a currency exchange puzzle. I bet the answer is hidden in all those numbers and dates.
AR
Ariel
1 year ago
User 3: The answer must be one of the options provided, let's do the math.
BE
Ben
1 year ago
User 2: Yes, we have to consider the spot exchange rates and the cost of the option.
DA
Daniel
1 year ago
User 1: I think we need to calculate the total cost including the option.
RI
Rima
2 years ago
Ugh, why do they always make these questions so complicated? I just want a simple, straightforward answer.
KR
Kris
2 years ago
Hmm, this question seems a bit tricky. I'll need to carefully calculate the exchange rates and the cost of the option to determine the total cost.
JU
Julian
1 year ago
User 2: Yes, we should consider the spot exchange rate and the cost of borrowing as well.
CH
Chun
1 year ago
User 1: I think we need to calculate the total cost including the cost of the option.
GA
Gayla
1 year ago
User 2: Yes, we should consider the spot exchange rates and the cost of borrowing as well.
BE
Beata
1 year ago
User 1: I think we need to calculate the total cost including the cost of the option.
MA
Maile
2 years ago
But the cost of the option was $180,000, so the total cost should be lower than that. That's why I chose A.
OL
Olive
2 years ago
I disagree, I believe the answer is B) V$5.684 million.
MA
Maile
2 years ago
I think the answer is A) V$4.628 million.