1. A firm wants to use an option to hedge NZ$12.5 million in receivables from New Zealand firms. The premium is $0.02. The exercise price is $0.50. If the option is exercised, what is the total amount of dollars received (after accounting for the premium paid)?

2. Assume the following information. You have $300,000 to invest. The spot bid rate for the euro is $1.08. The spot ask quote for the euro is $1.10. The 180-day forward rate (bid) of the euro is $1.08. The 180-day forward rate (ask) of the euro is $1.10. The 180-day interest rate in the U.S. is 6%. The 180-day interest rate in Europe is 8%. If you conduct CIA, what amount will you have after 180 days? Show your work.

3. The premium on a pound put option is $0.03 per unit. The exercise price is $1.60. What are the break even points for the buyer and the seller of the put option, respectively? Assume transactions costs for the buyer are $0.01 and for the seller are $0.02. Further assume both the buyer and seller of the put option are speculators.