BM purchased computer chips from NEC, a UK company electronics concern, and was billed 12,000,000 payable in three months. Currently, the spot exchange rate is $1.40/ and the three-month forward rate is $1.36/. The three-month money market interest rate is 12 percent per annum in the U.S. and 8 percent per annum in UK. The management of IBM decided to use the money market hedge to deal with this yen account payable.

Dollar proceeds when money market hedge is used $16,470,588.

Cash flow at maturity where money market hedge is used $$16,964,705.

Question

Compare and contrast the cash flow at maturity and the net dollar proceeds if instead the options market hedge is used by IBM. You may assume a put option of 12,000,000 with an exercise price of $1.36/ with a three-month expiration and an option premium of $ 0.05 per .