Q4 (25 Marks) XYZ plc is a UK manufacturer with products predominantly sold in the US. As financial director you are very concerned about the prospect of currency volatility since the company operates on very fine margins and even the smallest drop in revenues could have a major impact on profitability. The company has just delivered a major export order to a US customer at an agreed price of $40 million payable in three months' time and you are considering possible hedging techniques. You have been given the following exchange rate data: Spot rate ($/) 1.9342 - 1.9369 A bank has provided the following $40m 3-month OTC option quotes: Call option with an exercise price of $1.93 and a premium of 100,000 Put option with an exercise price of $1.93 and a premium of 100,000 a) Describe how a currency option may be used to hedge the receivable and calculate the net amount receivable if exchange rates in three months' time are: $1.90/ $1.96/ and comment on your results. (14 marks) b) Outline the various techniques that XYZ should consider to reduce its exposure to exchange rate risk. (11 marks)