10. Options hedge 5 pong Please refer to Table 3 in the datafile. What would be the maximum effective exchange rate when hedging a payable of 1mln EUR due in 3 months, in the options market? a) 1.1526 b) 1.1450 Oc) 1.1575 d) 1.1598 anado is a US company interested in hedging currency risk from its European business. You observe the following information related to hedging transaction exposure. EUR/USD spot mid 1,1526 Cost of capital (p.a.) 12% Forward market EUR/USD 3-month premium/discour -88 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Money market US 3-month borrowing rate (p.a.) 3-month deposit rate (p.a.) Eurozone 10% 8% 8% 6% Options market Maturity Premium EUR/USD strike call 3 months 1,25% 1,1450 put 3 months 1,15% 1,1515