refer to https://www.chegg.com/homework-help/questions-and-answers/9-us-based-company-made-sale-europcan-customer-receive-5-000-000-2-years-current-spot-rate-q89983199 for the beginning of the question

c) (7 points) If you believe the exchange rate in 2 years will be either $1.15/ or $1.30/, construct a Delta hedge with strike price at $1.20/ if the options contract size is 500,000. The call premium is $0.03/and the put premium is $0.04/. (i) Indicate whether you should buy a call or put option contract to hedge currency risk (ii) Find the hedge ratio (iii) Specify how many contracts you need to buy (iv) Find the final cash flow of account receivable (in dollars) using the delta hedge. Solution: c) (7 points) If you believe the exchange rate in 2 years will be either $1.15/ or $1.30/, construct a Delta hedge with strike price at $1.20/ if the options contract size is 500,000. The call premium is $0.03/and the put premium is $0.04/. (i) Indicate whether you should buy a call or put option contract to hedge currency risk (ii) Find the hedge ratio (iii) Specify how many contracts you need to buy (iv) Find the final cash flow of account receivable (in dollars) using the delta hedge. Solution