Your company will receive 25 million in 1 year from a German customer. You observe the following data. Use this information:

$: Spot Rate

$1.20:1.00

$: Forward Rate

$1.26:1.00

Cost of 1-year put or 1-year call

Exercise Price of $1.24:1

Per of exposure

2 US cents

1 Yr. $ interest rate

8.5%

1 Yr. interest rate

5.0%

Per 25 million of exposure

$500,000

Part A) Determine the value that the company will receive, in terms of millions of dollars.

Part B) The next day, your CEO changes her mind. She says she thinks the euro will strengthen. She is a bit uncertain, however, so instructs you to create a strategy where she can benefit from the euro appreciation but provide protection if she is wrong. Choose strategy that will meet her demands.

A)Buy a call option on British Pounds

B)Forward Hedge

C)Buy a put option on British Pounds

D)Money Market Hedge