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Q54 Single choice

Hedgehog International owes 500,000 local currency units to its foreign supplier in 90 days. The current spot rate of the local currency unit is $.60. Hedgehog purchases a call option to buy the local currency unit in 90 days for $.61 for a premium of $.005. The exchange rate for the local currency increases to $.63 in 90 days.

What will Hedgehog do on the payables' settlement date?

A
Hedgehog will exercise its option and settle the payables with proceeds from the option contract at a gain.
B
Hedgehog will not exercise the option and settle the payables after purchase of the local currency unit at the spot rate.
C
Hedgehog will be indifferent as to whether it exercises the option or not.
D
Hedgehog will sell the option at the settlement date and use its proceeds along with local currency units purchased at the spot rate to satisfy the amount payable.

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