Question: Basket Entity and Ball Entity enter into a derivative arrangement. Basket Entity purchases an option to purchase 100 shares of Ball Entity's stock at $25

Basket Entity and Ball Entity enter into a derivative arrangement. Basket Entity purchases an option to purchase 100 shares of Ball Entity's stock at $25 per share. On July 31, 20x2, Basket Entity exercises this option when the market price is $35 per share. The terms of the arrangement are such that the arrangement is settled with a net payment. What will be the net payment, and which entity will make the payment? Please explain your reasoning.

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