Suppose that the exchange rate is 1.25 = 1.00. Options (calls and puts) are available on the Philadelphia exchangein units of10,000 with strike prices of $1.60/1.00. Options (calls and puts) are available on thePhiladelphia exchangein units of10,000 with strike prices of $2.00/1.00.Help a U.S. firm to hedge a 100,000 payable,

 

Ans.: buy 10 call options on the euro with a strike in dollars.