Nouf is planning to visit Paris, France in Six months to attend an international business conference. she expects to incur a total cost of 10,000 for lodging during her stay. As of today, the spot exchange rate is $1.2/ and the Six-month forward rate is $1.34/. She can buy the six-month call option on with the exercise rate of $1.3/ for the premium of $0.07 per . Assume that your expected future spot exchange rate is the same as the forward rate. The Six-month interest rate is 7 percent per annum in the United States and 5percent per annum in France.

(a) Calculate your expected dollar cost of buying 10,000 if you choose to hedge via call option on .

(b) Calculate the future dollar cost of meeting this obligation if you decide to hedge using a forward contract