Answer:
Answer shown below.Step-by-step explanation:
1. Forward contract hedge.
Computation of cash outflow in $ .
2. Options hedging.
Since rands are required to be purchased and option is available in terms of" rand per $" , hence Put option is relevant.
Computation of cash outflow under options.
1. Cash outflow in $ under forward contract option = $ 10000000
2. Cash outflow in $ under options hedge
= $ 9099955
Cash outflow in $ is less in options hedging as compared to forward contract.
Hence, hedging should be preferred due to lower cash outflows.