You are a broker for frozen seafood products for Choyce Products You just signed a deal with a Belgian distributor Under the terms of the contract, in one year you will deliver 4,000 kilograms of frozen king crab for 107,000 euros Your cost for obtaining the king crab is $109,000 All cash flows occur in exactly one year a Plot your profits in one year from the contract as a function of the exchange rate in one year, for exchange rates from $0 75 to $1 45 Label this line Unhedged Profits b Suppose the one year forward exchange rate is $1 25 and that you enter into a forward contract to sell the euros you will receive at this rate In the figure from part (a), plot your combined profits from the crab contract and the forward contract as a function of the exchange rate in one year Label this line Forward Hedge c Suppose that instead of using a forward contract, you consider using options A one year call option to buy euros at a strike price of $1 257 is trading for $0 137 Similarly a one year put option to sell euros at a strike price of $1 257 is trading for $0 137 To hedge the risk of your profits, should you buy or sell the call or the put d In the figure from parts (a) and (b), plot your all in profits using the option hedge (combined profits of crab contract, option contract, and option price) as a function of the exchange rate in one year Label this line Option Hedge (Note You can ignore the effect of interest on the option price ) e Suppose that by the end of the year, a trade war erupts, leading to a European embargo on U S food products As a result, your deal is cancelled, and you don't receive the euros or incur the costs of procuring the crab However, you still have the profits (or losses) associated with your forward or options contract In a new figure, plot the profits associated with the forward hedge and the options hedge (labeling each line) When there is a risk of cancellation, which type of hedge has the least downside risk Explain briefly a Plot your profits in one year from the contract as a function of the exchange rate in one year, for exchange rates from $0 75 to $1 457 Label this line Unhedged Profits The unhedged profit is (Select the best choice below ) B 56,250 56,250 46,250 Unhedged Profit 46,250 Unhedged Profit 36,250 36,250 6 26,250 26,250 16 250 16,250 Profit in one year ($) Profit in one year ($) 6,250 6,250 3,750 Do 1 25 1 50 3,750 00 1 25 1 50 13,750 13,750 23 750 23,750 33,750 33,750 $ euro in one year $ euro in one year b Suppose the one year forward exchange rate is $1 25 and that you enter into a forward contract to sell the euros you will receive at this rate In the figure from part (a), plot your combined profits from the crab contract and the forward contract as a function of the exchange rate in one year Label this line Forward Hedge The forward hedged profit is (Select the best choice below ) OA B 56,250 56,250 46,250 Unhedged Profit Forward Hedged Profit 36,250 46,250 Unhedged Profit Forward Hedged Profit 36,250 26,250 6 26,250 16,250 W 16,250 Profit in one year ($) Profit in one year ($) 6,250 6,250 3,750 po 1 25 1 50 3,750 00 1 25 1 50 13,750 13,750 23,750 4 23,750 33,750 33,750 $ euro in one year $ euro in one year c Suppose that instead of using a forward contract, you consider using options A one year call option to buy euros at a strike price of $1 25 is trading for $0 137 Similarly a one year put option to sell euros at a strike price of $1 25 is trading for $0 137 To hedge the risk of your profits, should you buy or sell the call or the put (Select from the drop down menus ) You want to sell v in exchange for V Thus, buying put options will protect the price at which you can sell d In the figure from parts (a) and (b), plot your all in profits using the option hedge (combined profits of crab contract, option contract, and option price) as a function of the exchange rate in one year Label this line Option Hedge (Note You can ignore the effect of interest on the option price ) The all in option hedge is (Select the best choice below ) OA OB 56,250 1 56,2501 46,250 Unhedged Profit Forward Hedged Profit 36,250 Option Hedged 46,250 Unhedged Profit Forward Hedged Profit 36,250 Option Hedged 26,250 26,250 16,250 4 16,250 Profit in one year ($) Profit in one year ($) 6,250 6,250 3,750 200 1 25 1 50 3,750 200 1 25 1 50 13,750 13,750 23,750 23,750 33,750 33,750 leur in one vear leur in one vear e Suppose that by the end of the year, a trade war erupts, leading to a European embargo on U S food products As a result, your deal is cancelled, and you don't receive the euros or incur the costs of procuring the crab However, you still have the profits (or losses) associated with your forward or options contract In a new figure, plot the profits associated with the forward hedge and the options hedge (labeling each line) When there is a risk of cancellation, which type of hedge has the least downside risk Explain briefly (Select all the choices that apply ) A For the option hedge, you receive a payoff from the put if the value of the euro declines If the euro appreciates, the put is worthless (and are out the original purchase price of the puts) The profit is max 0, 107,000 ($1 25 Exchange rate) $13,910 With the puts, the maximum loss is their initial cost of $13,910 An advantage of hedging with options is the limited downside risk in the event of cancellation B For the forward hedge, you receive a payoff from the forward if the value of the euro declines If the euro appreciates, you have a loss on your forward position The profit is 107,000 ($1 25 Exchange rate) If the euro appreciates significantly, the loss from the forward hedge can be very large O C For the option hedge, you receive a payoff from the put if the value of the euro appreciates If the euro declines, the put is worthless (and are out the original purchase price of the puts) The profit is max 0, 107,000 ($1 25 Exchange rate) $13,910 With the puts, the maximum loss is their initial cost of $13,910 An advantage of hedging with options is the limited downside risk in the event of cancellation D For the forward hedge, you receive a payoff from the forward if the value of the euro appreciates If the euro declines, you have a loss on your forward position The profit is 107,000 ($1 25 Exchange rate) If the euro declines significantly, the loss from the forward hedge can be very large O C For the option hedge, you receive a payoff from the put if the value of the euro appreciates If the euro declines, the put is worthless (and are out the original purchase price of the puts) The profit is max 0, 107,000 ($1 25 Exchange rate) $13,910 With the puts, the maximum loss is their initial cost of $13,910 An advantage of hedging with options is the limited downside risk in the event of cancellation D For the forward hedge, you receive a payoff from the forward if the value of the euro appreciates If the euro declines, you have a loss on your forward position The profit is 107,000 ($1 25 Exchange rate) If the euro the loss from the forward hedge can be very large The graph depiction the profit is one year is (Select the best choice below ) OA 58,250 58 250 48,250 48 250 38,250 38,250 28,2504 6 28,250 18,250 18,250 Profit in one year ($) Profit in one year ($) 8,2504 8,250 1 25 1 50 1,750 1 00 1 25 1 50 1,750 1 00 11,750 Forward Payoff Option Payoff 21,750 11,750 Forward Payoff Option Payoff 21,7507 31,750 31,750 $ euro in one year $ euro in one year You are a broker for frozen seafood products for Choyce Products You just signed a deal with a Belgian distributor Under the terms of the contract, in one year you will deliver 4,000 kilograms of frozen king crab for 107,000 euros Your cost for obtaining the king crab is $109,000 All cash flows occur in exactly one year a Plot your profits in one year from the contract as a function of the exchange rate in one year, for exchange rates from $0 75 to $1 45 Label this line Unhedged Profits b Suppose the one year forward exchange rate is $1 25 and that you enter into a forward contract to sell the euros you will receive at this rate In the figure from part (a), plot your combined profits from the crab contract and the forward contract as a function of the exchange rate in one year Label this line Forward Hedge c Suppose that instead of using a forward contract, you consider using options A one year call option to buy euros at a strike price of $1 257 is trading for $0 137 Similarly a one year put option to sell euros at a strike price of $1 257 is trading for $0 137 To hedge the risk of your profits, should you buy or sell the call or the put d In the figure from parts (a) and (b), plot your all in profits using the option hedge (combined profits of crab contract, option contract, and option price) as a function of the exchange rate in one year Label this line Option Hedge (Note You can ignore the effect of interest on the option price ) e Suppose that by the end of the year, a trade war erupts, leading to a European embargo on U S food products As a result, your deal is cancelled, and you don't receive the euros or incur the costs of procuring the crab However, you still have the profits (or losses) associated with your forward or options contract In a new figure, plot the profits associated with the forward hedge and the options hedge (labeling each line) When there is a risk of cancellation, which type of hedge has the least downside risk Explain briefly a Plot your profits in one year from the contract as a function of the exchange rate in one year, for exchange rates from $0 75 to $1 457 Label this line Unhedged Profits The unhedged profit is (Select the best choice below ) B 56,250 56,250 46,250 Unhedged Profit 46,250 Unhedged Profit 36,250 36,250 6 26,250 26,250 16 250 16,250 Profit in one year ($) Profit in one year ($) 6,250 6,250 3,750 Do 1 25 1 50 3,750 00 1 25 1 50 13,750 13,750 23 750 23,750 33,750 33,750 $ euro in one year $ euro in one year b Suppose the one year forward exchange rate is $1 25 and that you enter into a forward contract to sell the euros you will receive at this rate In the figure from part (a), plot your combined profits from the crab contract and the forward contract as a function of the exchange rate in one year Label this line Forward Hedge The forward hedged profit is (Select the best choice below ) OA B 56,250 56,250 46,250 Unhedged Profit Forward Hedged Profit 36,250 46,250 Unhedged Profit Forward Hedged Profit 36,250 26,250 6 26,250 16,250 W 16,250 Profit in one year ($) Profit in one year ($) 6,250 6,250 3,750 po 1 25 1 50 3,750 00 1 25 1 50 13,750 13,750 23,750 4 23,750 33,750 33,750 $ euro in one year $ euro in one year c Suppose that instead of using a forward contract, you consider using options A one year call option to buy euros at a strike price of $1 25 is trading for $0 137 Similarly a one year put option to sell euros at a strike price of $1 25 is trading for $0 137 To hedge the risk of your profits, should you buy or sell the call or the put (Select from the drop down menus ) You want to sell v in exchange for V Thus, buying put options will protect the price at which you can sell d In the figure from parts (a) and (b), plot your all in profits using the option hedge (combined profits of crab contract, option contract, and option price) as a function of the exchange rate in one year Label this line Option Hedge (Note You can ignore the effect of interest on the option price ) The all in option hedge is (Select the best choice below ) OA OB 56,250 1 56,2501 46,250 Unhedged Profit Forward Hedged Profit 36,250 Option Hedged 46,250 Unhedged Profit Forward Hedged Profit 36,250 Option Hedged 26,250 26,250 16,250 4 16,250 Profit in one year ($) Profit in one year ($) 6,250 6,250 3,750 200 1 25 1 50 3,750 200 1 25 1 50 13,750 13,750 23,750 23,750 33,750 33,750 leur in one vear leur in one vear e Suppose that by the end of the year, a trade war erupts, leading to a European embargo on U S food products As a result, your deal is cancelled, and you don't receive the euros or incur the costs of procuring the crab However, you still have the profits (or losses) associated with your forward or options contract In a new figure, plot the profits associated with the forward hedge and the options hedge (labeling each line) When there is a risk of cancellation, which type of hedge has the least downside risk Explain briefly (Select all the choices that apply ) A For the option hedge, you receive a payoff from the put if the value of the euro declines If the euro appreciates, the put is worthless (and are out the original purchase price of the puts) The profit is max 0, 107,000 ($1 25 Exchange rate) $13,910 With the puts, the maximum loss is their initial cost of $13,910 An advantage of hedging with options is the limited downside risk in the event of cancellation B For the forward hedge, you receive a payoff from the forward if the value of the euro declines If the euro appreciates, you have a loss on your forward position The profit is 107,000 ($1 25 Exchange rate) If the euro appreciates significantly, the loss from the forward hedge can be very large O C For the option hedge, you receive a payoff from the put if the value of the euro appreciates If the euro declines, the put is worthless (and are out the original purchase price of the puts) The profit is max 0, 107,000 ($1 25 Exchange rate) $13,910 With the puts, the maximum loss is their initial cost of $13,910 An advantage of hedging with options is the limited downside risk in the event of cancellation D For the forward hedge, you receive a payoff from the forward if the value of the euro appreciates If the euro declines, you have a loss on your forward position The profit is 107,000 ($1 25 Exchange rate) If the euro declines significantly, the loss from the forward hedge can be very large O C For the option hedge, you receive a payoff from the put if the value of the euro appreciates If the euro declines, the put is worthless (and are out the original purchase price of the puts) The profit is max 0, 107,000 ($1 25 Exchange rate) $13,910 With the puts, the maximum loss is their initial cost of $13,910 An advantage of hedging with options is the limited downside risk in the event of cancellation D For the forward hedge, you receive a payoff from the forward if the value of the euro appreciates If the euro declines, you have a loss on your forward position The profit is 107,000 ($1 25 Exchange rate) If the euro the loss from the forward hedge can be very large The graph depiction the profit is one year is (Select the best choice below ) OA 58,250 58 250 48,250 48 250 38,250 38,250 28,2504 6 28,250 18,250 18,250 Profit in one year ($) Profit in one year ($) 8,2504 8,250 1 25 1 50 1,750 1 00 1 25 1 50 1,750 1 00 11,750 Forward Payoff Option Payoff 21,750 11,750 Forward Payoff Option Payoff 21,7507 31,750 31,750 $ euro in one year $ euro in one year

Question

You are a broker for frozen seafood products for Choyce Products  You just signed a deal with a Belgian distributor  Under the terms of the contract, in one year you will deliver 4,000 kilograms of frozen king crab for 107,000 euros  Your cost for obtaining the king crab is $109,000  All cash flows occur in exactly one year  a  Plot your profits in one year from the contract as a function of the exchange rate in one year, for exchange rates from $0 75   to $1 45    Label this line  Unhedged Profits   b  Suppose the one year forward exchange rate is $1 25  and that you enter into a forward contract to sell the euros you will receive at this rate  In the figure from part (a), plot your combined profits from the crab contract and the forward contract as a function of the exchange rate in one year  Label this line  Forward Hedge   c  Suppose that instead of using a forward contract, you consider using options  A one year call option to buy euros at a strike price of $1 257 is trading for $0 137  Similarly a one year put option to sell euros at a strike price of $1 257 is trading for $0 137  To hedge the risk of your profits, should you buy or sell the call or the put  d  In the figure from parts (a) and (b), plot your  all in  profits using the option hedge (combined profits of crab contract, option contract, and option price) as a function of the exchange rate in one year  Label this line  Option Hedge   (Note  You can ignore the effect of interest on the option price ) e  Suppose that by the end of the year, a trade war erupts, leading to a European embargo on U S  food products  As a result, your deal is cancelled, and you don't receive the euros or incur the costs of procuring the crab  However, you still have the profits (or losses) associated with your forward or options contract  In a new figure, plot the profits associated with the forward hedge and the options hedge (labeling each line)  When there is a risk of cancellation, which type of hedge has the least downside risk  Explain briefly    a  Plot your profits in one year from the contract as a function of the exchange rate in one year, for exchange rates from $0 75  to $1 457   Label this line  Unhedged Profits   The unhedged profit is  (Select the best choice below )   B  56,250 56,250 46,250 Unhedged Profit 46,250 Unhedged Profit 36,250 36,250 6 26,250 26,250 16 250 16,250 Profit in one year ($) Profit in one year ($) 6,250 6,250   3,750  Do 1 25 1 50  3,750  00 1 25 1 50  13,750  13,750   23 750   23,750   33,750   33,750  $ euro in one year $ euro in one year b  Suppose the one year forward exchange rate is $1 25  and that you enter into a forward contract to sell the euros you will receive at this rate  In the figure from part (a), plot your combined profits from the crab contract and the forward contract as a function of the exchange rate in one year  Label this line  Forward Hedge   The forward hedged profit is  (Select the best choice below ) OA B  56,250 56,250 46,250  Unhedged Profit Forward Hedged Profit 36,250 46,250 Unhedged Profit Forward Hedged Profit 36,250 26,250 6 26,250 16,250 W 16,250 Profit in one year ($) Profit in one year ($) 6,250  6,250   3,750  po 1 25 1 50  3,750  00 1 25 1 50  13,750   13,750   23,750 4  23,750   33,750  33,750  $ euro in one year $ euro in one year c  Suppose that instead of using a forward contract, you consider using options  A one year call option to buy euros at a strike price of $1 25  is trading for $0 137   Similarly a one year put option to sell euros at a strike price of $1 25  is trading for $0 137  To hedge the risk of your profits, should you buy or sell the call or the put  (Select from the drop down menus ) You want to sell v in exchange for V  Thus, buying put options will protect the price at which you can sell d  In the figure from parts (a) and (b), plot your  all in  profits using the option hedge (combined profits of crab contract, option contract, and option price) as a function of the exchange rate in one year  Label this line  Option Hedge   (Note  You can ignore the effect of interest on the option price ) The all in option hedge is  (Select the best choice below ) OA OB  56,250 1 56,2501 46,250  Unhedged Profit Forward Hedged Profit 36,250 Option Hedged 46,250 Unhedged Profit Forward Hedged Profit 36,250 Option Hedged 26,250 26,250  16,250 4 16,250 Profit in one year ($) Profit in one year ($) 6,250 6,250   3,750 200 1 25 1 50  3,750  200 1 25 1 50  13,750   13,750   23,750   23,750   33,750   33,750  leur in one vear leur in one vear e  Suppose that by the end of the year, a trade war erupts, leading to a European embargo on U S  food products  As a result, your deal is cancelled, and you don't receive the euros or incur the costs of procuring the crab  However, you still have the profits (or losses) associated with your forward or options contract  In a new figure, plot the profits associated with the forward hedge and the options hedge (labeling each line)  When there is a risk of cancellation, which type of hedge has the least downside risk Explain briefly (Select all the choices that apply ) A  For the option hedge, you receive a payoff from the put if the value of the euro declines  If the euro appreciates, the put is worthless (and are out the original purchase price of the puts)  The profit is  max  0, 107,000 ($1 25   Exchange rate)       $13,910  With the puts, the maximum loss is their initial cost of $13,910  An advantage of hedging with options is the limited downside risk in the event of cancellation  B  For the forward hedge, you receive a payoff from the forward if the value of the euro declines  If the euro appreciates, you have a loss on your forward position  The profit is  107,000 ($1 25   Exchange rate)     If the euro appreciates significantly, the loss from the forward hedge can be very large  O C  For the option hedge, you receive a payoff from the put if the value of the euro appreciates  If the euro declines, the put is worthless (and are out the original purchase price of the puts)  The profit is  max  0, 107,000 ($1 25   Exchange rate)       $13,910  With the puts, the maximum loss is their initial cost of $13,910  An advantage of hedging with options is the limited downside risk in the event of cancellation  D  For the forward hedge, you receive a payoff from the forward if the value of the euro appreciates  If the euro declines, you have a loss on your forward position  The profit is  107,000 ($1 25   Exchange rate)     If the euro declines significantly, the loss from the forward hedge can be very large  O C  For the option hedge, you receive a payoff from the put if the value of the euro appreciates  If the euro declines, the put is worthless (and are out the original purchase price of the puts)  The profit is  max  0, 107,000 ($1 25   Exchange rate)       $13,910  With the puts, the maximum loss is their initial cost of $13,910  An advantage of hedging with options is the limited downside risk in the event of cancellation  D  For the forward hedge, you receive a payoff from the forward if the value of the euro appreciates  If the euro declines, you have a loss on your forward position  The profit is  107,000 ($1 25   Exchange rate)     If the euro the loss from the forward hedge can be very large  The graph depiction the profit is one year is  (Select the best choice below ) OA    58,250 58 250 48,250  48 250 38,250  38,250 28,2504 6 28,250  18,250 18,250 Profit in one year ($) Profit in one year ($) 8,2504 8,250  1 25 1 50  1,750  1 00 1 25 1 50  1,750  1 00  11,750 Forward Payoff Option Payoff  21,750  11,750 Forward Payoff Option Payoff  21,7507  31,750   31,750 $ euro in one year $ euro in one year You are a broker for frozen seafood products for Choyce Products  You just signed a deal with a Belgian distributor  Under the terms of the contract, in one year you will deliver 4,000 kilograms of frozen king crab for 107,000 euros  Your cost for obtaining the king crab is $109,000  All cash flows occur in exactly one year  a  Plot your profits in one year from the contract as a function of the exchange rate in one year, for exchange rates from $0 75   to $1 45    Label this line  Unhedged Profits   b  Suppose the one year forward exchange rate is $1 25  and that you enter into a forward contract to sell the euros you will receive at this rate  In the figure from part (a), plot your combined profits from the crab contract and the forward contract as a function of the exchange rate in one year  Label this line  Forward Hedge   c  Suppose that instead of using a forward contract, you consider using options  A one year call option to buy euros at a strike price of $1 257 is trading for $0 137  Similarly a one year put option to sell euros at a strike price of $1 257 is trading for $0 137  To hedge the risk of your profits, should you buy or sell the call or the put  d  In the figure from parts (a) and (b), plot your  all in  profits using the option hedge (combined profits of crab contract, option contract, and option price) as a function of the exchange rate in one year  Label this line  Option Hedge   (Note  You can ignore the effect of interest on the option price ) e  Suppose that by the end of the year, a trade war erupts, leading to a European embargo on U S  food products  As a result, your deal is cancelled, and you don't receive the euros or incur the costs of procuring the crab  However, you still have the profits (or losses) associated with your forward or options contract  In a new figure, plot the profits associated with the forward hedge and the options hedge (labeling each line)  When there is a risk of cancellation, which type of hedge has the least downside risk  Explain briefly    a  Plot your profits in one year from the contract as a function of the exchange rate in one year, for exchange rates from $0 75  to $1 457   Label this line  Unhedged Profits   The unhedged profit is  (Select the best choice below )   B  56,250 56,250 46,250 Unhedged Profit 46,250 Unhedged Profit 36,250 36,250 6 26,250 26,250 16 250 16,250 Profit in one year ($) Profit in one year ($) 6,250 6,250   3,750  Do 1 25 1 50  3,750  00 1 25 1 50  13,750  13,750   23 750   23,750   33,750   33,750  $ euro in one year $ euro in one year b  Suppose the one year forward exchange rate is $1 25  and that you enter into a forward contract to sell the euros you will receive at this rate  In the figure from part (a), plot your combined profits from the crab contract and the forward contract as a function of the exchange rate in one year  Label this line  Forward Hedge   The forward hedged profit is  (Select the best choice below ) OA B  56,250 56,250 46,250  Unhedged Profit Forward Hedged Profit 36,250 46,250 Unhedged Profit Forward Hedged Profit 36,250 26,250 6 26,250 16,250 W 16,250 Profit in one year ($) Profit in one year ($) 6,250  6,250   3,750  po 1 25 1 50  3,750  00 1 25 1 50  13,750   13,750   23,750 4  23,750   33,750  33,750  $ euro in one year $ euro in one year c  Suppose that instead of using a forward contract, you consider using options  A one year call option to buy euros at a strike price of $1 25  is trading for $0 137   Similarly a one year put option to sell euros at a strike price of $1 25  is trading for $0 137  To hedge the risk of your profits, should you buy or sell the call or the put  (Select from the drop down menus ) You want to sell v in exchange for V  Thus, buying put options will protect the price at which you can sell d  In the figure from parts (a) and (b), plot your  all in  profits using the option hedge (combined profits of crab contract, option contract, and option price) as a function of the exchange rate in one year  Label this line  Option Hedge   (Note  You can ignore the effect of interest on the option price ) The all in option hedge is  (Select the best choice below ) OA OB  56,250 1 56,2501 46,250  Unhedged Profit Forward Hedged Profit 36,250 Option Hedged 46,250 Unhedged Profit Forward Hedged Profit 36,250 Option Hedged 26,250 26,250  16,250 4 16,250 Profit in one year ($) Profit in one year ($) 6,250 6,250   3,750 200 1 25 1 50  3,750  200 1 25 1 50  13,750   13,750   23,750   23,750   33,750   33,750  leur in one vear leur in one vear e  Suppose that by the end of the year, a trade war erupts, leading to a European embargo on U S  food products  As a result, your deal is cancelled, and you don't receive the euros or incur the costs of procuring the crab  However, you still have the profits (or losses) associated with your forward or options contract  In a new figure, plot the profits associated with the forward hedge and the options hedge (labeling each line)  When there is a risk of cancellation, which type of hedge has the least downside risk Explain briefly (Select all the choices that apply ) A  For the option hedge, you receive a payoff from the put if the value of the euro declines  If the euro appreciates, the put is worthless (and are out the original purchase price of the puts)  The profit is  max  0, 107,000 ($1 25   Exchange rate)       $13,910  With the puts, the maximum loss is their initial cost of $13,910  An advantage of hedging with options is the limited downside risk in the event of cancellation  B  For the forward hedge, you receive a payoff from the forward if the value of the euro declines  If the euro appreciates, you have a loss on your forward position  The profit is  107,000 ($1 25   Exchange rate)     If the euro appreciates significantly, the loss from the forward hedge can be very large  O C  For the option hedge, you receive a payoff from the put if the value of the euro appreciates  If the euro declines, the put is worthless (and are out the original purchase price of the puts)  The profit is  max  0, 107,000 ($1 25   Exchange rate)       $13,910  With the puts, the maximum loss is their initial cost of $13,910  An advantage of hedging with options is the limited downside risk in the event of cancellation  D  For the forward hedge, you receive a payoff from the forward if the value of the euro appreciates  If the euro declines, you have a loss on your forward position  The profit is  107,000 ($1 25   Exchange rate)     If the euro declines significantly, the loss from the forward hedge can be very large  O C  For the option hedge, you receive a payoff from the put if the value of the euro appreciates  If the euro declines, the put is worthless (and are out the original purchase price of the puts)  The profit is  max  0, 107,000 ($1 25   Exchange rate)       $13,910  With the puts, the maximum loss is their initial cost of $13,910  An advantage of hedging with options is the limited downside risk in the event of cancellation  D  For the forward hedge, you receive a payoff from the forward if the value of the euro appreciates  If the euro declines, you have a loss on your forward position  The profit is  107,000 ($1 25   Exchange rate)     If the euro the loss from the forward hedge can be very large  The graph depiction the profit is one year is  (Select the best choice below ) OA    58,250 58 250 48,250  48 250 38,250  38,250 28,2504 6 28,250  18,250 18,250 Profit in one year ($) Profit in one year ($) 8,2504 8,250  1 25 1 50  1,750  1 00 1 25 1 50  1,750  1 00  11,750 Forward Payoff Option Payoff  21,750  11,750 Forward Payoff Option Payoff  21,7507  31,750   31,750 $ euro in one year $ euro in one year

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You are a broker for frozen seafood products for Choyce Products. You just signed a deal with a Belgian distributor. Under the terms of the

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