Great Lakes Water exports bottled water to Europe. The company expects to receive 2,000,000 euros () in one year from its exports.

The firm expects the following exchange rate scenarios and probabilities:

Scenario	Spot rate in one year	Probability
A	$1.11	0.3
B	$1.2	0.2
C	$1.29	0.5

The spot rate is $1.2 per euro and the one-year forward rate is $1.201 per euro. The U.S. interest rate is 3% and the euro interest rate is 13%.

A put option on euros expiring in one year costs $0.006 per euro and has an exercise price of $1.2 per euro.

Attempt 1/10 for 10 pts.

Part 1

What is the expected dollar cash flow in one year if the company does not hedge its receivables (in $)?

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Attempt 1/10 for 10 pts.

Part 2

What will be the cash inflow if the firm uses a forward contract (in $)?

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Attempt 1/10 for 10 pts.

Part 3

What is the value of the receivables in one year with a money market hedge (in $)?

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Attempt 1/10 for 10 pts.

Part 4

What is the expected value of the receivables in one year with the put option hedge (in $)?

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Attempt 1/5 for 10 pts.

Part 5

What is the optimal strategy for the company?

Money market hedge

Forward contract

No hedging

Put options

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