Instruction $10\mathrm{.}1$:

Use the information for the following problem$($s$).$ months later in December. Because this is a sizable contract for the firm and because the contract is in euros rather than dollars, CVT is considering several hedging altematives 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 $$\frac{1\mathrm{.}250}{?}$ euro

$?$ The six $-$ month forward rate is $$\frac{1\mathrm{.}22}{?}$ euro

$?$ CVTs cost of capital is $11\%$

$?$ The Euro zone $6-$ month borrowing rate is $9\%($or $4\mathrm{.}5\%$ for $6$ months$)$

$?$ The Euro zone $6-$ month lending rate is $7\%($or $3\mathrm{.}5\%$ 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$)$

$?$ December call options for euro $750,000$ ; strike price $$1\mathrm{.}28,$ premium price is $1\mathrm{.}5\%$

$?$ CVTs forecast for $6-$ month spot rates is $$\frac{1\mathrm{.}27}{?}$ euro

$?$ The budget rate, or the highest acceptable purchase price for this project, is $$3,900,000$ or $$\frac{1\mathrm{.}30}{?}$ euro

A$.$ worse off; $$150,000$

B$.$ worse off, $150,000$

C$.$ better off; $150,000$

D$.$ better off; $$150,000$