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A company in Belgium expect to pay $2M to the supplier in Arabia

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A company in Belgium expect to pay $2M to the supplier in Arabia. it is now November and payment is due in March. The current spot rate is 1.2100.

The company wants to use currency option to hedge the exposure. Each company option is €1.25000. The value of 1 tick is $12.50

Required.

Calculate the effective exchange rate of the spot exchange rate move in the Option holder if

a). The spot exchange rate move adversary