Bouygues is a French company that has bid on a big project sponsored by the Moroccan government.

If the bid is accepted, Bouygues will need MAD 500,000,000 MAD to purchase materials. However, it will not know whether the bid is accepted until 6 months from now.

The company expects the value of the Moroccan Dirham to decrease; it has decided to buy a call option on the Moroccan MAD with the following specificities:

Strike price: 1 Euro= 11.2 MAD

Premium: 0.005 Euro per unit

What is the total amount of the premium to be paid?

What is the maximum amount necessary to buy the 500,000,000 MAD?

Suppose on the settlement date, the prevailing spot rate is 1 Euro = 11.5 MAD; would Bouygues exercise the call option? What is the gain/loss?

Suppose that Bouyguess bid is rejected. What strategy could the company follow? Give examples and full explanation.