1. A U.S. importer/exporter has imported products from a Belgian company for which it now owes 1 million euros (€) payable 30 days from today. Which of the following could the importer potentially do to successfully hedge against movement in the exchange rate between the U.S. dollar and the euro?
a. All of these are options that the importer/exporter could potentially use as effective exchange rate hedges.
b. Purchase a 30-day forward contract for €1 million.
c. Export €1 million worth of products to Europe payable 30 days from today in order to create an offsetting transaction.
d. Purchase a futures contract for €1 million that will mature in approximately 30 days.
2. Let S(t) be the price of a given security at time t. All of the following options have exercise time t and, unless stated otherwise, exercise price K. Give the payoff at time t that is earned by an investor who:
(a) owns one call and one put option;
(b) owns one call having exercise price K1 and has sold one put havingexercise price K2;
(c) owns two calls and has sold short one share of the security;
(d) owns one share of the security and has sold one call.