VI. The current exchange rate between RMB and US dollar is 6.33 (RMB/$), risk free rates in US and China are 4.6% and 4.2% (continuous compounding), respectively. The volatility of the exchange rate is 10%. A manufacture in China knows that it will receive $5 in 6 months. The company decides to use options to guarantee an exchange rate between 6.10 and 6.45 in 6 months. a. What strategy should be the company use? Page 4 of 5 b. What is the initial cost/income for the strategy? You might need the following prices: for K=6.10, call option price c 0.32, put option price p = 0.08. For K=6.45, call option - price c = 0.13, put option price p = 0.23.