5. A U.S. firm expects a receivable (cash inflow) of 1,000,000 in six months. The current exchange rate is $1.085/. Firm wants to sell euros in six months (to convert the inflow into dollars).

Consider 3 possible spot prices in six months.

1. $1.160/

2. $1.082/

3. $1.000/

What kind of option, put or call, is appropriate to hedge with?

In each scenario, what is the total amount of the firms NET receivable? NET receivable means to incorporate the hedging costs of buying the option. (Assume an option exercise price of $1.085/ and option premium of $.015/)