Illinois Company expects to receive $10$ million euros in one year from exports. The current spot exchange rate is $$1\mathrm{.}05/$ and the one$-$year forward rate is $$1\mathrm{.}1/.$ The annual interest rate is $6\%$ in the US and $4\%$ in the eurozone. Put options on euros are available with an exercise price of $$1\mathrm{.}13,$ an expiration date of one year from today, and a premium of $$\mathrm{.}02$ per euro. Illinois is concerned with the volatile exchange rate between the dollar and the euro and would like to hedge exchange exposure.

a$.$ Compute the dollar cash flows received as a result of a forward hedge.

b$.$ Compute the dollar cash flows received as a result of a money market hedge. Which hedging strategy $($forward hedge vs money market hedge$)$ should Illinois choose?

c$.$ Assuming that the forward exchange rate $($$$1\mathrm{.}1)$ is the best predictor of the future spot rate, compute the expected future dollar cash flow received when the option hedge is used.

d$.$ At what forward rate do you think Illinois may be indifferent between the forward hedge and the money market hedge?

e$.$ At what future spot rate do you think Illinois may be indifferent between the option and forward hedge?