There is a payable in Mexican pesos of 50 million. Presuppose the Spot rate now, spot rate in one year, and forward rate now are 25, 24, and 22 MXN/$, respectively. The premium for calls of an exercise price of MXN/$ 20, 22, and 24 is 2%. The premium for puts of strike price MXN/$ 20, 22, 25 is 1.5%. Hedge through the forward and money market.

Additional Notes:

In this problem, we have a receivable in a foreign currency, and we are concerned that it may devalue relatively to the greenback. Show how to hedge according to forward and option approaches. Do not do the money market.