Hedging a possible translation loss using an option contract
A forward contract was used to establish a derivatives "hedge" to protect Centralia from a translation loss if the euro depreciated from ?1.1000/$1.00 to ?1.1786/$1.00. Assume that an over-the-counter put option on the euro with a strike price of ?1.1393/$1.00 (or $0.8777/?1.00) can be purchased for $0.0088 per euro. Show how