Hedging with Put Options. The following information applies to problems 27 through 29. As treasurer of Tucson Corp. (a U.S. exporter to New Zealand), you must decide how to hedge (if at all) future receivables of 250,000 New Zealand dollars 90 days from now. Put options are available for a premium of $.05 per unit and an exercise price of $.51 per New Zealand dollar. The forecasted spot rate of the NZ$ in 90 days follows:

Future Spot Rate Probability

.42	30%
.38	50
.32	20

27. Create a probability distribution for U.S. dollars to be received in 90 days if you decide not to hedge (given the forecasted exchange rates).

a. 30% probability of receiving $105,000; 50% probability of receiving $95,000; 20% probability of receiving $80,000.

b. 30% probability of receiving $110,000; 50% probability of receiving $95,000; 20% probability of receiving $80,000.

c. 30% probability of receiving $105,000; 50% probability of receiving $90,000; 20% probability of receiving $80,000.

d. 30% probability of receiving $105,000; 50% probability of receiving $95,000; 20% probability of receiving $75,000.

28. Create a probability distribution for U.S. dollars to be received in 90 days if you decide to hedge with put options.

a. The probability distribution represents a 100% probability of receiving $127,500

b. The probability distribution represents a 100% probability of receiving $115,000

c. The correct answer is not listed.

29. What is your decision to hedge or not to hedge given the forecasted exchange rates? Why?

a. Hedge

b. Dont hedge