c. Rollexx Ltd sells watches in the US for USD 100. Festine SA, a French competitor, sells the same watches for EUR 25 in Europe. Festine SA always sells watches at EUR 25, and will start selling watches in the US at the exchange rate S:USD/EUR (i.e. EUR 25 x S:USD/EUR) as soon as they can compete in prices with Rollexx. Once Festine has entered in the US market, Rollexx needs to match their price. REQUIRED: i. Explain under which circumstances Festine will enter in the US market to sell watches. [5 marks] ii. Define a strategy using currency option contracts to hedge the exposure faced by Rollexx against the competition with Festine. [5 marks] iii. Draw a diagram containing Rollexx's exposure, the payoff function of the hedging strategy defined in the previous part, and the combination of the two cashflows. [10 marks] c. Rollexx Ltd sells watches in the US for USD 100. Festine SA, a French competitor, sells the same watches for EUR 25 in Europe. Festine SA always sells watches at EUR 25, and will start selling watches in the US at the exchange rate S:USD/EUR (i.e. EUR 25 x S:USD/EUR) as soon as they can compete in prices with Rollexx. Once Festine has entered in the US market, Rollexx needs to match their price. REQUIRED: i. Explain under which circumstances Festine will enter in the US market to sell watches. [5 marks] ii. Define a strategy using currency option contracts to hedge the exposure faced by Rollexx against the competition with Festine. [5 marks] iii. Draw a diagram containing Rollexx's exposure, the payoff function of the hedging strategy defined in the previous part, and the combination of the two cashflows. [10 marks]