Forward Market Hedge: You run an American cheese shop that buys much of its stock from a French supplier for Euros. One year from now, you will need to pay EUR 5M to your supplier, and you wish to totally hedge your transaction exposure. You have the following investments available to you: Investment Details 1 year riskless Euro debt Borrow or lend EUR at 3.5% 1 year riskless USD debt Borrow or lend USD at 11.3% 1 year forward contract Forward rate is USD 1.35 per EUR a. Generally, what is one reason to choose a forward contract over an option? (5 points) b. Generally, what is one reason to choose an option over a forward contract? (5 points) c. If you were going to hedge this transaction with options: i. What would the underlying asset be? (3 points) ii. What would the maturity be? (2 points) iii. Would you want a put or a call? (3 points) iv. Would you take the long or short leg? (2 points) d. How could you use borrowing and lending to completely hedge this transaction? Please list all transactions you would make. (30 points) e. Would the hedge discussed in Part C be a better or worse deal than the forward contract? (10 points) 1.3 usd to euro