Option prices:

Currencies	3 month options				6 month options
	Call option		Put option		Call option		Put option
	Strike	Premium in $	Strike	Premium in $	Strike	Premium in $	Strike	Premium in $
$/	$1.14399	$0.00174	$1.15088	$0.00174	$1.15010	$0.00173	$1.15702	$0.00152
$/CAD	$0.76292	$0.00392	$0.76828	$0.00392	$0.77205	$0.00387	$0.77747	$0.00387

Bank applies 360 day-count convention to all currencies. (Students also have to apply 360 days in all calculations). Option premium calculations should include time value calculations based on US $ annual borrowing interest rates for applicable time periods e.g. 3 month $ option premium is subject to 2.687%/4 interest rate.)

a. Calculate the cost of money market hedges for the import from France (Complete Table 3 on the separate answer sheet).

b. Determine the option types that you will consider based on the exchange rate quotes provided by your bank. Remember we will long or short the base currencies (in this case study the currencies that are not $) and the FV of premium cost is based on the borrowing cost of $ for the time period of the option. For example if it is a 3 month option, then the interest rate that should be applied is United States 3 month borrowing rate of 2.687%/4 = 0.67175%). Calculate the total cost of using options as hedging instrument for the import from France (Complete Table 4 on the separate answer sheet).

c. Compare the forward quotes, money market hedges and options with each other to determine the best exchange rate hedge for France (Complete Table 5 on the separate answer sheet)

d. Calculate the exchange rates that will apply if the money market hedges are used for the export to Canada (Complete Table 6 on the separate answer sheet)

e. Compare the forward quotes and money market hedges with each other to determine the best exchange rate hedges for Canada (Complete Table 7 on the separate answer sheet)

f. Assume you entered into the forward hedge for the import from France. Three months have passed since you entered into the hedge. Interest rates are the same as before. The spot exchange rate of the $/ is 1.15510. Calculate the value of your forward position. Please use a 360 day-count convention, since the bank also used a 360 day-count convention with the forward quotes provided to you. Also remember for interest rates use risk free rates provided under scenario 1. Show your calculation in table 8 on the separate answer sheet.