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Suppose the USD/euro exchange rate is 1.25 with a volatility of 15%. A U.S. company...

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Accounting

Suppose the USD/euro exchange rate is 1.25 with a volatility of 15%. A U.S.

company will receive 1 million euros in three months. The euro and USD risk

free rates are 5% and 4%, respectively. The company decides to use s range

forward contract with the lower strike price equal to 1.15.

(a) What should the higher strike price be to create a zero-cost contract?

(b) What position in calls and puts should the company take?

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