1.Use the following information to solve the probleme (CL06) Plains States Manufacturing has just signed a contract to sell agriculture equipment to Boschin, a German firm, for 1,250,000. The sale was made in June with payment due six months later than December. Because this is a sizable contract for the firm and because the contract is in Euros rather than dollars, Plains States is considering several hedging alternatives to reduce the exchange rate risk arising from the sale. To help the firm make a hedging decision you have gathered the following information. The spot exchange rate is $0.89247 The six-month forward rate is $0.8750/ Plains States' cost of capital is 11% The Euro zone 6-month borrowing rate is 9% (or 4.5% for 6 months) The Euro zone 6-months borrowing rate is 7% (or 3.5% for 6 months) The U.S. 6-month borrowing rate is 8% (or 4% for 6 months) The U.S. 6-month lending rate is 6% (or 3% for 6 months) - December put options for 625,000; strike price $0.90, premium prices is 1.5% Plains States' forecast for 6-month spot rates is $0.91/ The budget rate, or the lowest acceptable sales price for this project, is $1,075,000 or $0.867 Plains States chooses to hedge its transaction exposure in the forward market at he available forward rate. Calculate the payoff in 6 months