2. Assume that Jarret Co. (a U.S. firm) expects to receive 1 million euros in 1...

   

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2. Assume that Jarret Co. (a U.S. firm) expects to receive 1 million euros in 1 year. The spot rate of the euro is $1.20. The 1-year forward rate of the euro is $1.21. Jarret expects the spot rate of the euro to be $1.22 in 1 year. Assume that 1-year put options on euros are available, with an exercise price of $1.23 and a premium of $0.04 per unit. Assume the following money market rates: United States Deposit Rate Borrowing Rate 8% Eurozone 5% 9% 6% (a) Determine the dollar cash flows to be received if Jarret uses a money market hedge. (Assume Jarret does not have any cash on hand) (b) Determine the dollar cash flows to be received if Jarret uses a put option hedge. 2. Assume that Jarret Co. (a U.S. firm) expects to receive 1 million euros in 1 year. The spot rate of the euro is $1.20. The 1-year forward rate of the euro is $1.21. Jarret expects the spot rate of the euro to be $1.22 in 1 year. Assume that 1-year put options on euros are available, with an exercise price of $1.23 and a premium of $0.04 per unit. Assume the following money market rates: United States Deposit Rate Borrowing Rate 8% Eurozone 5% 9% 6% (a) Determine the dollar cash flows to be received if Jarret uses a money market hedge. (Assume Jarret does not have any cash on hand) (b) Determine the dollar cash flows to be received if Jarret uses a put option hedge.