rates between hedging methods and which you prefer which hedging method.

Assume that you are a U . S. bank importer of iewe y and just bought design pieces from Italy for 1200, 000 . You owe iSO, 000 to the Italian supplier in one year. You are also concerned the dollars you wtlihave to pay this purchase in one year. Assume the following: Spot exchange rate is Sl.SO/euro. Forward exchange rate is Sl.25/euro. U.S. interest rate is per annum Europe is pel annurn- Cali option with strike price is Sl.30/euro is available with oremium of SO_10/euro. Put option with strike price of Sl.30/eufo is available with premium of SC 10/euto yout ISwers to two decirwl places. Unhedged position: Suppose you decide not to do anything. In one year. Spot rate happens to be Sl.50/euro explain what will be the tota! doiOr cos' o' what toe total dollar cost will be if spot rate happens to be Sl.30/i in one year and SIA/euro. Explain whether you subject to exchange rate risk in this case Forward rrurke' e you can at the exact dollaq of this purchase by using forward contracts and whether you should agree to buy or sell 150.000 forward in one year's time. Money marke: hedge market hedge, where should you borrow and how much. Identify and explain the total dollar cost for this purchase and whether you are subject to exchange rate 'is* t' Describe how you can hatch using options. Describe whether you purchase put or call options on euros and what the total premium is today. Explain when you will exetase and COSI if you exercise and when will you not exercise your options and what will be the total dollar cost. Comparing hedging methods: Identify and explain the break between and which you prer which hedging method.