A U.S. company has British pound 2 million payables in 90 days. The company decide to use option contracts to manage its FX risk from this international transaction and has the following information about the option contracts. A 90 day call option contract for BP 2 million with strike rate = $1.74/BP, call premium per British pound is $0.02 A 90 day put option contract for BP 2 million with strike rate = $1.75/BP, put premium per British pound is $0.02 90 days later, if the spot rate becomes $1.7900/BP, what will be the companys decision for the option contract? Based on the companys decision, calculate the total cost of US$ of the company or US$ revenue at the expiration date of the option.

Answer Choices:

purchase a put option, exercise, Net US$ revenue is $3,460,000

purchase a call option, exercise, total US$ cost is $3,520,000

purchase a put option, exercise, total US$ cost is $3,460,000

purchase a call option, exercise, Net US$ revenue is $3,520,000