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1. The current spot exchange rate is $1.55 = €1.00 and the three-month forward rate is $1.60 = €1.00. Consider a three-month American put option on €62,500 with a strike price of $1.50 = €1.00. If you pay an option premium of $5,000 to buy this put, at what exchange rate will you break-even?
A. $1.58 = €1.00
B. $1.62 = €1.00
C. $1.50 = €1.00
D. $1.68 = €1.00 E. $1.42 = €1.00
2. The most direct and popular way of hedging transaction exposure is by
A. exchange-traded futures options .
B. currency forward contracts. '
C. foreign currency warrants.
D. borrowing and lending in the domestic and foreign money markets.
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