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Question 3 (20 points) A firm has an account receivable of E30 million in 90 days. The firm can handle its open position using the

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Question 3 (20 points) A firm has an account receivable of E30 million in 90 days. The firm can handle its open position using the following methods: Method 1: Forward contracts on E with a 90-day forward rate of C$1.4623 per E. Method 2: Options on E with an exercise price of C$1.4624 per E in 90 days and a premium of C$0.0004 per E. Method 3: Leave the position open. Note: Show your work and keep you answers to 4 decimal points if necessary. a) If the spot exchange rate 90 days from now were C$ 1.4622 per E, which method should the firm use? What will be the total amount paid or total amount received from hedging? (15 points) Note: Be sure to explain what kind of forward and options on E the firm would use. b) Find the range of the C$/E spot rate 90 days from now that will make the firm leave its position open. Explain. (5 points)

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