18) As a financial advisor at Morgan Stanley, you are advising a client on the costs and benefits of hedging a transaction with options. Your client, a U.S. exporter, is scheduled to receive a payment of 7,000,000 on April 20, 45 days in the future. Assume that your client can borrow and lend at a 7% p.a. U.S. interest rate. Use the appropriate American option with an April maturity and a strike price of 120/ to determine the dollar cost today of hedging the transaction with an option strategy. The cost of the call option is 3.98/, and the cost of the put option is 1.10/. Assuming a 360-day year, what is the minimum dollar revenue your client will receive in April? Remember to take account of the opportunity cost of doing the option hedge. A. $8,400,000.00 B. $8,544,899.45 C. $8,244,798.25 D. $8,322,326.25 E. None of the above 19) Suppose that you are trying to decide between two job offers. One company, IBM, offers you $160,000 per year to work out of its New York office. Another company, British Airway, wants you to work out of its London office and offers you 110,000 per year. The current exchange rate is $1.50/. The PPP exchange rate is $1.40/. Which company should you work with if you are indifferent between working in the two cities when the purchasing power of your salary is the same? What should be the other offers salary that makes you indifferent between the two offers? Page 8 of 13 A. London; $162,356 B. London; $161,775 C. New York; 125,517 D. New York; 114,286 E. None of the above answers is correct 20) Consider the following information:

UK ()	USD ($)
Price level (t)	10,000	17,000
Inflation	7%	3%
Price level (t+1)	10,700	17,510
Actual exchange rate ($/)	$1.8/

If relative PPP holds from time t to t+1, the US dollar is most likely to: A. Appreciate 5.88% against the pound over the 1-year period B. Depreciate 5.88% against the pound over the 1-year period C. Appreciate 3.88% against the pound over the 1-year period D. Depreciate 3.88% against the pound over the 1-year period E. None of the above