2. A U.S. firm expects a receivable (cash inflow) of 1,000,000 in six months. The current exchange rate is $1.265/. Firm wants to sell euros in six months (to convert the inflow into dollars). Consider 3 possible spot prices in six months.

1. $1.365/

2. $1.272/

3. $1.176/

• 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 $1.27/ and option premium of $.0225/)