THIS IS THE ONLY INFORMATION GIVEN :).

Q; Refer to instruction in the table. If CVT locks in the forward hedge at $1.22/euro, and the spot tate when the transaction was recorded on the books was $1.25/euro, this will result in a "foreign exchange accounting transaction ____ of _____.

1. Loss - $90,000
2. Loss - euro 90,000
3. Gain - $90,000
4. Gain - euro 90,000

Q; refer to instruction in the table. what is the cost of a call option hedge for CVT's euro receivable contract?

a- 57,600

b-59,344

c-62,208

d-63,936

(NOTE: calculate the cost in future value dollars and assume the firm's cost of capital as the appropriate interest rate for calculating future values).

Central Valley Transit Inc. (CVT) has just signed a contract to purchase light rail cars from a manufacturer in Germany for 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 rm 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 .250leuro . The six-month forward rate is $1.22/euro . CVT's cost of capital is 11% The Euro zone 6-month borrowing rate is 9% (or 4.5% for 6 months) . The Euro zone 6-month lending rate is 7% (or 3.5% for 6 months) ' The US. 6-month borrowing rate is 8% (or 4% for 6 months) . The US. 6-month lending rate is 6% (or 3% for 6 months) - December call options for euro 750,000; strike price $1.28, premium price is 1.5% . CVT's forecast for 6-month spot rates is $1 .27/ euro ' The budget rate, or the highest acceptable purchase price for this project, is $3,900,000 or $1 .3 0/ euro