1. Let the actual foreign exchange price of the future pound be X, that is, gbp 1=usdx.
Calculate the critical point first.
(25000* 1.5+750)/25000= 1.5300
Critical point of price decline (25000 *1.5-750)/25000 =1.4700.
Then when x > 1.53, Company A successfully hedges its value with options. (It can also be regarded as profit, and the profit value is (x- 1.5)*25000-750.
When 1.5≤x≤ 1.53, Company A also used the option, but it could not hedge at the beginning, so the loss value was 750-(x- 1.5)*25000.
When 1.47≤x≤ 1.50, Company A will not use the option, and the loss value is 750-( 1.5-x)*25000.
When x < 1.47, Company A will not use the option and make a profit. The profit value is (1.5-x)*25000-750.
Check the textbook again to see if the solution meets the definition ~
The second question is that selling and buying are the opposite. Everything in the front is similar. The conclusion is:
When x < 1.47, Company A uses options to generate profits. The profit value is (1.5-x)*25000-750.
When 1.47≤x≤ 1.50, Company A uses options, resulting in a loss of 750-(1.5-x) * 25,000.
When 1.5≤x≤ 1.53, Company A doesn't use options, but it can start without hedging, so the loss value is 750-(x- 1.5)*25000.
When x > 1.53, Company A does not use options and generates profits. The profit value is (x- 1.5)*25000-750.
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