Central Valley Transit Inc. (CVT) has just signed a contract to purchase light rail cars from a manufacturer in Germany for euro 3,000,000. The purchase was made in June with payment due six months later in December. Because this is a sizable contract for the firm and because the contract is in euros rather than dollars, CVT is considering several hedging alternatives to reduce the exchange rate risk arising from the sale. To help the firm make a hedging decision you have gathered the following information. The spot exchange rate is $1.250/euro The six month forward rate is $1.22/euro CVT's cost of capital is 10% The Euro zone 6-month borrowing rate is 9% (or 4.5% for 6 months) The Euro zone 6-month saving rate is 7% (or 3.5% for 6 months) The U.S. 6-month borrowing rate is 8% (or 4% for 6 months) The U.S. 6-month saving rate is 6% (or 3% for 6 months) December call options for euro 750,000; strike price $1.28/euro, premium price is 1.5% CVT's forecast for 6-month spot rates is $1.27/euro 21) Refer to Instruction 10.1. If CVT chooses NOT to hedge their euro payable, the amount they pay in six months will be: A) $3,500,000. B) $3,900,000. C) 3,000,000. D) unknown today 22) Refer to Instruction 10.1. CVT chooses to hedge its transaction exposure in the forward market at the available forward rate. The required amount in dollars to pay off the accounts payable in 6 months will be: A) $3,810,000. B) $3,660,000. C) $3,750,000. D) $3,000,000. 23) Refer to Instruction 10.1. CVT would be ________ by an amount equal to ________ with a forward hedge than if they had NOT hedged and their predicted exchange rate for 6 months had been correct. A) worse off; $150,000 B) better off; $150,000 C) worse off; 150,000 D) better off; 150,000 24) Refer to Instruction 10.1. If CVT chooses to use call options to hedge and the exchange rate is $1.350/euro in December, how much is the total cost for CVT to pay euro 3,000,000 payment? (Note: Remember to consider the option premium and the appropriate interest or opportunity cost.) A) $3,059,063 B) $3,891,264 C) $3,896,250 D) $3,899,063 25) Refer to Instruction 10.1. If CVT chooses to use money market to hedge the exchange rate risk, how much is CVTs total cost in December to pay euro 3,000,000? (Note: Remember to consider the appropriate interest or opportunity cost) A) $3,513,831 B) $3,623,188 C) $3,804,348 D) 3,872,341