Velodyne Inc. has just signed a contract to sell LIDAR systems to BMW for 100,250,000. The sale was made in June, with payment due six months later in December. Because this is a sizable contract for the firm and because the contract is in Euros rather than dollars, Velodyne considers several hedging alternatives to reduce the exchange rate risk arising from the sale. To help the firm make a hedging decision, the CFO gathered the following information. - The spot exchange rate is EUR/USD1.1740-1.1743 - The six-month forward rate is EUR/USD 1.1510-1.1520 - Velodyne's cost of capital is 10% - December put options for EUR with a strike price of $1.16 has a premium of 1.5% - Velodyne budget rate, or the lowest acceptable sales price for this project, is USD 115,380,000 or EUR/USD 1.1509 Compare the following hedging alternatives: 1. Compare Hedging with the forward contract and money market hedge. Which one is more advantageous? Show your calculations. 2. Evaluate hedging by using the EUR/USD 1.16 strike put option. Show your calculations. 3. Briefly discuss the pros and cons of each alternative and make a recommendation to the Velodyne management