You observe the following quotations of currency options on Euro. They are European put options expiring in six months. Contract size is 10,000. (a) Suppose you would like to buy one contract of one of these options to speculate on the depreciation of over the next six months. Plot and compare the net profit/loss profiles (in USS) of the buyers of the two put options as a function of the spot exchange rate to be realized in six months. What are the respective break-even exchange rates of the two options? What is the range of the realized spot exchange rates that will result in the outcome (based on net profit/loss) from using Option \#1 being worse than that of Option #2 ? Comment on the differences in using the two options to speculate on depreciation. (b) Suppose you operate a US firm selling electronic components to customers in Germany. Your firm will be receiving 10,000 from a customer in six months. You would like to hedge against the depreciation of by buying one of the above two put options. Plot and compare the net hedged US\$ cash flows by using Option #1 vs. Option #2 as a function of the spot exchange rate to be realized in six months (make sure to account for the option prices paid upfront in arriving at the net cash flows). What are the minimum net hedged US\$ cash flows respectively by using Option #1 and Option #2 to hedge? Comment on the differences in using the two options to hedge against the FX risk of your receivable