A$.$ NuEdge Corporation, a US based company, imports raw material from Europe. NuEdge needs $15,000,000$ ni $1$year period ot pay its purchases. The folowing interest rates are observed:

Annual Deposit Rate $(\%)/$Annual Lending Rate $(\%)$ European Bank $2\mathrm{.}8\%5\mathrm{.}4\%$

US Bank $2\mathrm{.}6\%5\mathrm{.}8\%$

Spot rate for Euro $$2\mathrm{.}20/$

$12-$month forward rate for Euro $$2\mathrm{.}30/$

Put options are available with an exercise price of $$2\mathrm{.}29,$ an expiration date of one year from today, and a premium of $$\mathrm{.}05$ per unit, and call options are

available with an exercise price of $$2\mathrm{.}305,$ an expiration date of one year from today, and a premium of $$\mathrm{.}04$ per unit.

Required:

Which is the best hedging strategy for NuEdge Corporation? Support your conclusion with appropriate calculations.

$(20$ marks$)$

B$.$ Explain the difference between a forward contract, a currency strangle and a currency option and describe the best conditions for using each type of derivative.

$(5$ marks$)$