Problem # $3(20$ Pts$.)$

MNCs use risk management techniques to eliminate transaction exposure including forward hedges,

money market hedges, and option hedges. Draw one diagram to show the possible outcomes of these

hedging alternatives for a foreign currency payables contract. In your diagram, be sure to label the $x$ and

$Y-$axis, the put option strike price, and show the possible results for a money market hedge, a forward

hedge, a put option hedge, and an uncovered position.

$($Note: Assume the Call option strike price is $$\frac{1\mathrm{.}50}{f},$ the price of the option is $$0\mathrm{.}04$ the forward rate is

$$\frac{1\mathrm{.}52}{}$ and the current spot rate, at $t_0,$ is $$\frac{1\mathrm{.}48}{}.$ Further, have the $x$ axis for the ending spot exchang

rate and the $y$ axis for receivables in $\frac{\text{\$}}{}.$ For simplicity, you can assume you will pay one $$ in the future