SUPPOSE THAT YOUR FIRM IS A U.S.-BASED IMPORTER OF GERMAN AUTOMOB...

102. Suppose that your firm is a U.S.-based importer of German automobile accessories. You pay for them in euros and sell them in dollars. You have just ordered next year's inventory. In one year your firm owes a payment of €100,000 to your German supplier. Today's spot exchange rate is €1.00 = $1.50; the one-year forward rate is €1.00 = $1.55. How can you fix the dollar cost of this order? a. Enter into long position in the one-year euro futures contract at €1.00 = $1.55. This will fix the cost of €100,000 at $155,000. b. Enter into short position in the one-year euro futures contract at €1.00 = $1.55. c. Since the spot price is more than the forward price, you should trade your dollars for euros today and pay your supplier early. d. Sell a call option on the euro with a one-year maturity.