Dynamic Motors Inc. $($DMI$)$ has just signed a contract to purchase electric vehicle batteries from a manufacturer in South Korea for $2,500,000,000.$ The purchase was made in August with payment due six months later in February. Because this is a significant contract for the firm and because the contract is in Korean won rather than dollars, DMI is considering several hedging alternatives to reduce the exchange rate risk arising from the sale. To help the firm make a hedging decision you have gathered the following information:

The spot exchange rate is $$0\mathrm{.}00085/$won

The six$-$month forward rate is $$0\mathrm{.}00088/$won

DMI's cost of capital is $10\%$

The South Korean $6-$month borrowing rate is $7\%($or $3\mathrm{.}5\%$ for $6$ months$)$

The South Korean $6-$month lending rate is $5\%($or $2\mathrm{.}5\%$ for $6$ months$)$

The U$.$S$.6-$month borrowing rate is $8\%($or $4\%$ for $6$ months$)$

The U$.$S$.6-$month lending rate is $6\%($or $3\%$ for $6$ months$)$

February call options for $600,000,000$; strike price $$0\mathrm{.}00090,$ premium price is $2\%$

DMI's forecast for $6-$month spot rates is $$0\mathrm{.}00087/$won

The budget rate, or the highest acceptable purchase price for this project, is $$2,800,000$ or $$0\mathrm{.}00092/$won

$1.$ What is the cost of a call option hedge for DMI's won receivable contract? $($Note: Calculate the cost in future value dollars and assume the firm's cost of capital as the appropriate interest rate for calculating future values.$)$

A$)$ $$61,315$

B$)$ $$58,200$

C$)$ $$64,800$

D$)$ $$60,500$

$2.$ When there is a full forward cover with the spot rate equal to the forward rate all of the following are true EXCEPT:

A$)$ The hedge is asymmetric.

B$)$ There is no uncovered exposure remaining.

C$)$ The currency hedge ratio is equal to $1.$

D$)$ The total position is a perfect hedge.

$3.\_\_\_\_\_\_\_\_$ are transactions for which there are, at present, no contracts or agreements between parties.

A$)$ Anticipated exposure

B$)$ Quotation exposure

C$)$ Backlog exposure

D$)$ None of the above