• 3M has signed a contract with the German government in order to supply 3 million facemasks worth 10 million. The German government will pay this amount in 120 days. 3M has decided to buy an option contract in order to hedge the exchange rate risk. Strike price is $0.9/ and premium is 0.05$/.
• a. What type of option, call or put, is better for 3M to hedge the risk on this operation?

• b. At what spot rate (t = 120 days) does it make sense for 3M to exercise the option?

• c. Calculate the breakeven price (BEP)

• d. Calculate the gain/loss under the following scenario (spot rate day 120): $1.01/.