The Coca-Cola Company, an American multinational beverage corporation, is trying to decide how to hedge 1,000,000 accounts payable due in one year. Current interest rates and exchange rates are:

Spot rate: $1.10/ Forward rate: $1.18/ One-year interest rates: interest rate: 1.00% per annum $ interest rate: 2.00% per annum Call option: $1.16 strike, premium $0.0125/ Put option: $1.16 strike, premium $0.0125/ Which of the following statement is NOT true if Coca-Cola stays unhedged? (2 points) If future spot rate is $1.10/, the dollar payment will be $1,100,000. If future spot rate is $1.20/, the dollar payment will be $1,180,000. If future spot rate is $1.30/, the dollar payment will be $ 1,300,000. The dollar payment will increase with future spot rate. Which of the following statement is NOT true about the forward market hedge? (2 points) It future spot rate is $1.30/, the dollar payment will be $1,180,000. It future spot rate is $1.40/, the dollar payment will be $1,180,000. The dollar payment will not change with future spot rate. Coca-Cola should sell euro forward. How should Coca-Cola hedge the euro accounts payable in the options market? (2 points) Buy a call option on euro Buy a put option on euro Sell a call option on euro Sell a put option on euro What will the total dollar payment be from the option market hedge if future spot rate is $1.10/? (2 points) $1,112,750 $1,112,500 $1,087,250 $1,100,000 Which of the following statement is NOT true about the option market hedge? (2 points) The maximum total dollar payment is $1,172,750. When future spot rate is greater than strike price, total dollar payment does not change with future spot rate. When future spot rate is less than strike price, total dollar payment decreases with future spot rate. There is a maximum of the total dollar payment. How should Coca-Cola hedge in the money market? (2 points) Borrow and sell for $ today. Borrow $ and sell $ for today. What will the dollar payment be in one year if Coca-Cola the money market hedge? (2 points) $1,089,109 $1,122,000 $1,110,891 It depends on future spot rate. Which of the following statement is NOT true about the money market hedge? (2 points) All else being equal, the higher the euro interest rate, the lower the dollar payment in one year. All else being equal, the higher the dollar interest rate, the higher the dollar payment in one year. The dollar payment in one year depends on the future spot rate. All else being equal, the higher the euro spot rate, the higher the dollar payment in one year. What is the breakeven future spot rate between forward market hedge and option market hedge (round to four decimal places)? (2 points) $1.1928/ $1.2300/ $1.1300/ $1.1673/ If you believe the spot rate in one year will be $1.10/euro, what do you recommend Coca-Cola choose? (2 points) Choose option market hedge Choose forward market hedge