Suppose that the exchange rate is 1.25 = 1.00. Options (calls and puts) are available on the London exchange in units of 10,000 with strike prices of 0.80 = 1.00. Options (calls and puts) are available on the Frankfurt exchange in units of 10,000 with strike prices of 1.25 = 1.00. How many call or put options should the UK firm to hedge a 100,000 receivables?

Group of answer choices

Both strategies work

Buy 10 put options on the euro with a strike in GBP.

Buy 8 call options on the GBP with a strike in euro.