QUESTION: Your company ordered an environmental study at a cost of 225 000 USD. This amount will be due when the study is delivered in 9 months. The current spot rate is 1.30 CAD/USD. Compare the cost in CAD of this study according to the spot rate in 9 months.

1. Without hedging
2. Hedging using a 9-month forward contract at an exchange rate of 1.33 CAD/USD.
3. With money market hedging. The borrowing rate in CAD is 2.8% and the deposit rate is 1.2%. The borrowing rate in USD is 3.2% and the deposit rate is 1.9%. (Effective rates per 9 months)
4. With option hedging. The following options on 100 USD expire in 9 months:

Premium Call (CAD) 9.715 2.545 Strike Premium Put (CAD/USD) |(CAD) 1.25 1.68 1.40 9.435