Suppose 1-year Put Options on Canadian Dollars are available with the following characteristics:

Premium = USD .01 Current Spot Rate = USD .805

Exercise Price = USD .82 US Interest Rate = 3.5%

Coverage = CAD 1 million Canadian Interest Rate = 4.0%

1)Suppose your firm will receive CAD 1 million in 1 year. Thus, you are concerned with depreciation of the Canadian Dollar (CAD) over the next year.If you believe in IFE and IRP between the USD and the CAD, your best choice for hedging your exposure would be a(an)-

Money Market hedge

Put Option Hedge

Forward Hedge

Unhedged Position

2)Suppose you execute a Money Market Hedge on your CAD 1 million in receivables. Your net USD proceeds in one year from your Money Market Hedge would be approximately -

USD 801,130

USD 833,175

USD 902451

USD 1,035,000

3)In the hedging choices noted in this scenario, the primary _______ of a(an) _______ is that the ultimate outcome is _______ when the hedge is constructed.

Disadvantage; Put Option; Known

Advantage; Money Market Hedge; Known

Advantage; Forward hedge; Unknown

Disadvantage; Money market Hedge; Unknown