Your firm is a U$.$S$.$based exporter. You have sold $2,000,000$ worth of toys to a German firm. Payment from the German firm $($in $)$ is due in $1$ year. Your firm wants to hedge the account receivable. The one$-$year interest is $4\%$ in the U$.$S$.$ and $5\%$ in the Eurozone. The spot exchange rate is $$1\mathrm{.}50/.$ Please figure out up to two decimals. a$)$ Consider the money market hedge. i$)$ Figure out the present value of the account receivable in euros. ii$)$ Do you need to borrow or invest the present value of the account receivable in Eurozone today? Explain the reason.

iii$)$ Figure out the future value of the account receivable in dollars.

iv$)$ Compare the exchange rate created by the money market hedging and the exchange rate based on IRP $($Interest Rate Parity$).$

b$)$ Consider the options market hedge. What kind of option do you use for the account receivable? Call or put option?