The following information exists.

$$ Spot rate $=$ ZAR $1\mathrm{.}20$ for $1$BWP

$30-$day forward rate $=$ ZAR $1\mathrm{.}25$ for $1$BWP

Interest rates are as follows:

South Africa Botswana

$30-$day deposit rate $10\%9\%$

$30-$day borrowing rate $12\%11\%$

$$ A call option that expires in $30$ days has an exercise price of ZAR$1\mathrm{.}25$ and a premium of

ZAR$0\mathrm{.}04.$ The size of the contract is BWP$350000.$

You have forecasted the future spot rate in ZAR for BWP in $30$ days as follows:

Possible outcomes Probability

$1\mathrm{.}3027\%$

$1\mathrm{.}3839\%$

$1\mathrm{.}0534\%$

Assume you are a foreign exchange analyst at Letsie Bank in South Africa. You have been

approached by a customer who intends to pay Botswana Pula $($BWP$350000)$ in $30$ days$$ time.

Given the information below, advise the customer on how he can use the hedging techniques

$($call option, money market hedge and forward contract$)$ so that he can get the BWP$350000$ at

the lowest cost. You are also required to show a comparison between unhedged scenario versus

the results of the three hedging techniques.