a) A US company expects to receive 1 million euros in 1 year. With the following assumptions, would the company be better off with a money market hedge or a put options hedge. Show workings for each.

i. The existing spot rate of the Euro is $1.20. The 1-year forward rate of the Euro is $1.21. The US Company expects the spot rate of the Euro to be $1.22 in 1 year.

ii. 1 year put options on euros are available, with an exercise price of $1.23 and a premium of $0.04 per unit.

iii. The deposit rates for the US are 8% per annum whereas they are 5% per annum for the Eurozone iv. The Borrowing rates for the US are 9% per annum whereas they are 6% per annum for the Eurozone