The spot exchange rate is $1.21/. The 6-month forward rate is $1.25/. The Euro Zone 6-month deposit rate is 4%. The U.S. 6-month borrowing rate is 5%. The 6-month Call option for Euros has an exercise price of $1.24/uro and a premium of $0.03/uro. The probability distribution of the expected spot rate between USD and uro in six months is forecasted to be: $1.20/----20% $1.23/----20% $1.25/----30% $1.27/----30%

a) Please analyze and evaluate alternative contractual hedging techniques that can be applied to this position (consider no hedge as an alternative) with your detailed calculations.

b) If you were the CFO of this multinational corporation, would you hedge against the transaction exposure borne due to this position? If so, which contractual hedging alternative would you choose and why? Please justify your answer with the data and show your step-by-step calculations.