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a. What happens to the break even exchange rate between "forward hedge" and the "option hedge" as the exercise rate of the put option decreases.

The break even exchange rate decreases

The break even exchange rate increases

The break even exchange rate is not effected by the exercise rate of that put option. None

b. In a put option, what happens to the minimum net proceeds as the exercise rate of the option increases?

The minimum net proceeds increase.

The minimum net proceeds decrease.

The minimum net proceeds of a put option is not effected by the exercise rate of that option contract.

None

c. What happens to the cost of a put option when the exercise rate of that put option increases.

The cost of that put option increases

The cost of that put option decreases

The cost of a put option is not effected by the exercise rate of that put option.

None

d. You will receive 500,000 in a few months and you calculate that the break-even exchange rate for you between the forward hedge (forward contract) and option hedge (option contract) is $/ 1.78. Which of the following is more profitable for you if the spot rate is $/ 1.80?

Forward contract (forward hedging)

Option contract (option hedging)

Both option contract and the forward contact provide the same profit

None

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