SAP (a German company) bought Qualtrics for $8 billion in 2018.The deal was to close in 12 months. The current exchange ratebetween USD and Euro was $1.185 at the time of the deal. Theexchange rate forecast was for Euro to depreciate against the USD,but the exact decline is not known. SAP decided to hedge withderivatives and purchased enough options for USD. The call optionwith strike price of $1.18 per Euro is selling for the price of$0.005 USD. The put option with strike price of $1.18 is sellingfor $0.01. Which option should SAP use? What is the profit/lossfrom the hedge if the exchange rate turns out to be $1.165 in 12months? What about if the rate is $1.19?
