Suppose that you (i.e., company XYZ) are a US-based exporter of goods to Switzerland. You will be receiving payment on a shipment of imported goods (CHF100,000) in three months and want to hedge your currency exposure. The US risk-free rate is 6% and the Switzerland risk-free rate is 4% per year. The current spot rate is $1.1/CHF, and the three-month forward rate is $1.2/CHF. You can also buy a three-month option on CHF at the strike price of $1.25 /CHF for a premium of $0.05/CHF.

1. If XYZ wants to hedge the transaction exposure using option hedge, XYZ should ______________. A) buy a put option B) sell a put option C) buy a call option D) sell a call option 2. If XYZ hedges the exposure using an option hedge, total option premium: $ will be paid today. The option premium will grow to $ in three months at the US interest rate. In three months, if the spot price is $1.2 per CHF, the option is (in/out) of the money. So, XYZ will sell 100,000 CHF at the price of $ per CHF, which equals to a total proceeds of $ . After the option premium, the total (net) dollar proceeds in three month is $ . 3. At what future spot exchange rate do you think XYZ will be indifferent between the option and forward hedge?$/CHF. (please leave 5 decimal points for your answer) 4.The range that you will prefer option hedge to forward hedge is ________. A) when the future spot rate is higher than the indifference price that you solved in the above question. B) when the future spot rate is lower than the indifference price that you solved in the above question.