Option Pricing P

Notes from professor

Hopkins is buying cocoa beans at a an option price of $4.50 USD per 1.00 Cedi.

If they exercise the option, they will pay $200,000 USD for the 900,000 Cedi.

If they let the option expire un-exersized, they can buy 900,000 Cedi for $78,261 on the spot market rate of 1 USD = 11.50 Cedi.

Why would they exercise their option?

On the other hand, if Hopkins had entered into a defined purchase contract to pay $200,000 for 900,000 Cedi, they would be locked into that price.

Prof. Shelton