On October 1st, 2019, Algerian Co. SNVI (Socit Nationale des Vhicules Industriels) imports from Germany spare parts for a total value of Euros 1 million. Payment is due 6 months later. SNVI plans to protect itself from an expected appreciation of the Euro and decides to buy a currency option for the entire contract's amount.

The Bank offers to SNVI the following:

Exercise Price: EUR 1 = DZD 77.43

Exercise Date = March 2020

Premium = DZD 0.03 per EUR 1.

All banking fees are only those stated above.

At the due date, spot rates could be as per the following three possible scenarios:

If Euro appreciates EUR 1= DZD 79.9874.

If Euro depreciates EUR 1 = DZD 75.1250.

If Spot rate is equal to Exercise Price: EUR 1 = DZD 77.43.

a)For each scenario, calculate the amounts SNVI will spend in DZD. (4 pts x 2.5 = 10pts)

b)In Which scenario, SNVI will exercise the Option Contract. (1 pts)

c)Justify your answer. (4 pts)