AR Hedge: UML has contracted with ASIS for its service to provide a consulting and will receive KRW300,000,000 in one year after the service is terminated. UML wants to know how much USD it wil receive in one year so that it can budget this year's expense properly. International Finance Student Club gathered the following information about KRW exchange and will make a recommendation how to manage this future receivable and report the amount in USD that UNL is expected to receive from ASis in one year from now. The current spot: $ .0011 Forward rate: .0010. Interest rate (US) : 3% Interest rate (Korea); 5% Put option with exercise price of .0010 is available at the premium of $.0001 and the call option with exercise price of $.0010 is available at the premium of $.0002. The following is the probability distribution of the future spot of KRW. Future Spot Probability .0008 0009 10% 20% 25% 30% 10% 5% .0010 .0011 .0012 .0013 1. What is the expected amount if you executed the forward Hedge? 2. What is the expected amount if you executed the money market hedge? 3. What is the expected amount if you executed the option hedge? 4. What is the expected amount if you executed Nake (no hedge)? What is your recommendation to UML? What is the probability that Forward outperform Option Hedge? What is the probability that Money market outperform Naked? 5. 6. 7