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Robert is owed MXN 3.7M in one year. Most of his expenses are in USD,...

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Finance

Robert is owed MXN 3.7M in one year. Most of his expenses are in USD, and he would like to protect himself from exchange rate risk. One year from now, one USD will buy either MXN 17.6 or MXN 21.3. He is considering the following solutions:

  1. Options . Robert is considering a put or call option, both of which have a maturity of one year. The put option has a strike price of 18.8 MXN per USD. The call option has a strike price of 22 MXN per USD. You may ignore option premiums for the purpose of this question
    1. If Robert wishes to use an option to hedge, what should the underlying asset be?

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