Assume, in each scenario, that all revenues are realized at the end of December 2020. In addition to the import-related costs, F. Mayer has operational costs (e.g., paying employees, property costs) that equals 30% of the revenues. The import costs in 2020 in Euros are fixed at 70 million. Assume all costs are paid at the end of the year.

The current spot exchange rate is 0.63/A$ - 0.64/A$ and forward rate is 0.59/A$ - 0.62/A$. The call option premium is 0.026, and the call option strike price is 0.62. The put option premium is 0.025 and the put option strike price is 0.60. You are only allowed to buy options and you are not allowed to write options.

Your finance team has made the following 1-year forecasts for December 2020:

spot will be 0.63/A$ - 0.64/A$ if the investors (and speculators) risk levels remain unchanged during the pandemic.

spot will be 0.51/A$ - 0.53/A$ if the investors (and speculators) consider the Euro a safe haven currency during the pandemic.

spot will be 0.88/A$ - 0.90/A$ if the investors (and speculators) consider the Australian dollar a safe haven currency during the pandemic.

Assume that your team decided to hedge F. Mayer's currency exposure using option contracts. What are your import costs in local currency under Scenario 1

a) if the exchange rate remains at 0.63/A$ - 0.64/A$? How does this compare to the baseline case? Clearly state the type of option you are using.

b) if the investors consider the Euro a safe haven currency during the pandemic? How does this compare to the baseline case?