hedging decision indiana co expects to receive 5 million euros in 1 year from export 1555542

Hedging Decision Indiana Co. expects to receive 5 million euros in 1 year from exports, and it wants to consider hedging its exchange rate risk. The spot rate of the euro as of today is $1.10. Interest rate parity exists. Indiana Co. uses the forward rate as a predictor of the future spot rate. The annual interest rate in the United States is 8 percent versus an annual interest rate of 5 percent in the eurozone. Put options on euros are available with an exercise price of $1.11, an expiration date of 1 year from today, and a premium of $.06 per unit. Estimate the dollar cash flows that Indiana Co. will receive as a result of using each of the following strategies

a.       unhedged strategy

b.       money market hedge

c.        c. call option hedge