Q

A company based in U.S. is expected to make a payment to a client in 3 months in the amount of 1,000,000 euros. To do so, it plans to acquire euros in 3 months on the spot market. Current exchange rate is $0.90 per euro and the company is seeking to hedge the risk that it pays above that rate in the future. In order to hedge the risk, the company can transact in either European call or European put options on euro maturing in 3 months. The strike price of both options is $0.90 per euro, call premium is $0.05 per euro, while put premium is $0.04 per euro. The company decides to __________ today. In 3 months the price of euro turns out to be $1.20 per euro. Given this outcome, the companys overall cost of acquiring euros is ______ per euro.

a. buy puts; $0.94 b. buy calls; $0.95 c. sell puts; $0.86 d. sell calls; $0.85 e. buy puts; $0.86