A

B

C

$[0.$

It is July $1,2020.$ You work as an analyst for Clsa Frigorifics in Lake Wobegon, MN$.$ Jorgen Giongen, the CCO, has ordered a pair of advanced ice$-$replicators from Genmany.

The equipment will cast $E140$ million, due in Curo, one year from now on July $1,2021.$

Jorgen is conoerned about the forcign exchange exposure of this upcoming puynent. During the last $12$ months, currency market volatility has been unusually high, fueled mostly by uncertainty about the potential weakness of the U$5$ dollar. If the dollar cost of the equipment ends up being above $$170$ million the project is not prolitsble amyrnore.

Diagonal Alley Bank offers the following spot nate and $12$ months forward points:

Spot $($S$)$

$12$ months $($$$/$C$)$

$\frac{1\mathrm{.}1212}{1\mathrm{.}1210}$

$\frac{84}{89}*(.\frac{0024}{.}0029)$

USD rate $12-$months

$0\mathrm{.}81810\mathrm{.}85$

EUR rate $12-$months

$0\mathrm{.}100\mathrm{.}10\mathrm{.}12x$

You call Gringotts Bank and ask for a one year $1\mathrm{.}1300$ s$/$ Cptn ike c$.$t$,$ option to buy $6140$ million. Gringots quotes the following one vear offer price for you le buy the option:

One year option on Euro $($exercise price$),1\mathrm{.}1300(\frac{5}{6})$

Percentage of $ amount at excroise price $\_,3\mathrm{.}58\%$

Analyze the following alternative: Gringotts Bank option hedge:

$(1)$ Evaluate the overall hedged rusults of this strategy $($ $ cost$)$ if the $\frac{5}{C}$ turns cout to be $1\mathrm{.}01.1\mathrm{.}05,1\mathrm{.}09,1\mathrm{.}13,1\mathrm{.}17,1\mathrm{.}21,1\mathrm{.}25$ noting in what cases the option is exencised or not, and $(2)$ Which exchange rote scenario of the above works out best for Cyberdyne if they hedged with the call option.