2. a) Suppose you believe that Ds stock price is going to decline from its current level sometime during the next 6 months. Suppose you buy a 6-month put option on Ds stock for $400. This put option gives you the right to sell 100 shares of Ds stock at an exercise price of $51 per share. What is the most you could lose in this purchase, at what price for Ds stock would you break even by exercising this option and how much would you make if Ds stock fell to $44 per share?

b) A U.S. importer makes a purchase from a German firm in the amount of 21,000 euros. At the current spot rate of 0.75 euros per dollar, how much is this purchase in U.S. dollars? Next, consider that this U.S firm will not have to pay the German firm for 90 days and that the U.S. firm is concerned that the dollar might weaken over this 90-day period. Suppose the U.S. firm completes a forward hedge at the 90-day forward rate of 0.725 euros per dollar. If in 90 days the dollar weakens so that the spot rate is 0.70 euros per dollar, how much of a loss (in dollars) will the U.S. firm have avoided by hedging its exchange rate exposure?