The spot exchange rate is 10 Mexican pesos (MXP) per US. dollar. Todayis November 4. The three - month interest rates are 12 percent in pesos and 8percent in dollars A Mexican peso call traded in Chicago with a strike price of 0.10 perpeso has a premium of $0.005.

A Mexican peso put traded in Chicago with astrike price of S0.10 has a permium of S0. 0062. The size of the optioncontract is MXP 500, 000. Both calls and puts can be exercised on February(in three months). a What is the three - month forward exchange rate S:MXP?

b. You are Mexican and will receive Slmillion on US on Feb4 Should youbuy or sell pesos forward to hedge your future dollar cash flow? How manypesos will you get on February 4 if you hedge?

c. Should you buy or sell peso calls or puts to insure your cash flow?Assuming that youhave some cash available to buy the options, how manyoption contracts should you buy? Calculate the resulting peso cash flows onFebruary 4 for spot exchange rates of 8, 10 and MXP12/S