PANTI Power Generation, Inc., a local electric utility company, has agreed to buy two gas turbines from NANCY at a price of 10 million per turbine. Payment is due upon delivery, one (1) year from today. You are PANTI's Treasurer. You have obtained the following quotes.

Spot FX (Foreign eXchange) rate: $1.5000/

One year forward FX rate: $1.5218/

One year $ interest rate: 4.50%

One year interest rate: 3.00%

One year call option (on ) w/strike $1.500/: $0.0691/

You are considering three possible strategies.

i) Hedge using the forward market.

ii) Hedge using the money market.

iii) Hedge using the options market.

4. For each hedging strategy, calculate the expected cash flows, both today and in 1 year. Based on your calculations, choose the strategy you think is best. What reason will you give the CEO for choosing this particular strategy? (You must include a sound economic reason in order to get full credit!).