Lucy's Lollipops Co. imports candy to North Carolina from Mexico. Lucy's isexpanding their business by purchasing candy in Mexico. A vendor in Mexico has agreed to a price of 10,000,000 pesos, due in 90 days. The following statistics describe the current state of the Peso-Dollar FX market.

1. The spot rate is USD 0.0682/MXN
2. The 90-day interest rate in Mexico is 2.54%
3. The 90-day interest rate in the US is 1.68%

The option market has the following contracts available:

A call option on 10,000,000 MXN with a strike price equal to USD $690,000 (I.e., per peso is $0.0690) will cost $31,000.

A put option on 10,000,000 MXN with a strike price equal to USD $690,000 (I.e., per peso is $0.0690) will cost $15,000.

What is your estimate for the cash flow in terms of USD, which will result fromthe firm's following choices: to not hedge at all, use a forward market hedge, oruse one of the options (listed above) to hedge. For the options choice, you need to decide whether a call or a put is most appropriate. Note that your answers should be negative as the cash flow is to pay a vender. (5 points)

Spot Market at S(1) No Hedge Options Forward Markets

USD 0.0600/MXN

USD 0.0625/MXN

USD 0.0650/MXN

USD 0.0675/MXN

USD 0.0700/MXN

USD 0.0725/MXN

USD 0.0750/MXN