Cosmo, a Japanese exporter, wishes to hedge its $15 million in dollar receivables coming due in 60 days. In order to reduce its net cost of hedging to zero, however, Cosmo sells a 60-day dollar call option for $15 million with a strike price of 98/$ and uses the premium of $314,000 to buy a 60-day $15 million put option at a strike price of 90/$.a.Graph the payoff on Cosmo's hedged position over the range 80/$-110/$. What risk is Cosmo subjecting itself to with this option hedge?

1. What is the net yen value of exporter's option hedged positions at the following future spot rates: 85/$, 95/$, and 105/$?

2. As an alternative to using options, exporter could have hedged with a 60-day forward contract at a price of 97/$. What would be the yen value of exporter's hedged receivable if it had used a forward contract to hedge? [One Point]

3. At what exchange rate will the hedged value of exporter's dollar receivables be the same whether it used the option hedge or forward hedge? [One Point]