A company expects to receive C$$1,200,000$ in one year. Furthermore, the company also expects to pay C$$400,000$ at the same date. The existing spot rate of the Canadian dollar $($C$$)$ is $$\mathrm{.}80/$C$$,$ and the $1$ year forward rate is $$\mathrm{.}81/$C$$.$

One$-$year call options on Canadian dollars are available, with an exercise price of $$\mathrm{.}82/$C$ and a premium of $$\mathrm{.}03$ per unit. One$-$year put options on Canadian dollars are available, with an exercise price of $$\mathrm{.}83/$C$ and a premium of $$\mathrm{.}04$ per unit. Assume the following money market rates:

U$.$S$.$ Canada

Deposit rate $6\%5\%$

Borrowing rate $87$

Given this information:

a$.$ What is the transaction exposure of the company?

b$.$ Calculate the value of a forward hedge. $($Show all your steps and calculations$)$ c$.$ Calculate the value of a money market hedge. $($Show all your steps and calculations$)$ d$.$ Calculate the value of an option hedge. $($Show all your steps and calculations$)$ e$.$ If the company thinks the spot rate will be $$0\mathrm{.}85/$C$ in one year, which hedge should they choose? Why?