Josh Swan is the chief financial officer of Sprockets, Inc., a company that builds and sells industrial robots in the U.S.. Sprockets just signed a contract with a new German supplier to buy parts pound 900,000. The contract calls for delivery one year from today, at which time Sprockets must pay the pound 900,000. The value of the euro relative to the dollar has been quite volatile in the last few years, and experts expect the euro in one year to be about at the same level as it is today, but an appreciation or more likely a depreciation of the euro is quite possible, too. Since this is the first time that Sprockets has German supplier, it has little experience in dealing with exchange rate risk. The firm s bank, HSBC, has quoted Mr. Mugnier the following rates. EUR borrowing rate for Sprockets: 4.30% per year EUR deposit rate for Sprockets: 4.10% per year USD borrowing rate for Sprockets: 3.75% per year USD deposit rate for Sprockets: 3.60% per year Spot FX Rate on Euro Bid---Ask quote: $1.3552/pound---$1.3558/pound One-year Forward on Euro Bid---Ask quote: $1.3495/pound---$1.3500/pound The bid --- ask premium on a one-year EUR call option pre EUR with a strike price of $1.35/pound is 1.18% --- 1.20% of the mid spot rate (average of bid and ask spot rate). Assume the contract size is pound 900,000. The bid --- ask premium on a one-year EUR put option per EUR with a strike price of $1.35/pound 0.80%---0.83% of the mid spot rate (average of bid and ask spot rate). Assume the contract size is pound 900,000. If Sprockets purchases EUR in the spot market or in an option contract, the purchase will be finance with borrowing USD from HSBC; If Sprockets has USD in hand, it will be deposited with HSBC. You have been hired to advise Mr. Swan on this issue. FIN464 only: What is the main concern of Sprockets in this transaction? How many hedging alternatives does Sprockets have to control the transaction exposure? PICK TWO, and explain m details with words, calculations and ONE GRAPH with the two strategies on how these hedging strategies compare with an unedged alternative can affect Sprockets, and which strategy you would pick