Suppose ESPN (Disney) is expecting revenues of \(£ 6,250,000\) next April (one year from now: \(T=1\) ) from its United Kingdom Rugby sports productions division. ESPN expects the dollar price of the British pound to increase when it converts its \(£ 6,250,000\) but would like to set a floor on the dollar value of its revenue. Currently, the spot \(\$ / £\) exchange rate is \(\$1.50 / £\), and there is a put option on the April BP futures contract with an exercise price of \(\$1.50 / £\), contract size of \(£ 62,500\) trading at \(\$0.02 / £\).

a. Explain how ESPN could set a floor on it dollar revenue in June with the British pound futures put option. How many contracts would they need to set up the floor?

b. Show in a table ESPN's April dollar revenue from converting \(£ 6,250,000\), the intrinsic values of the BP future put, the long put position's cash flow, and the put-insured dollar revenue on April expiration date for possible spot exchange rates of \(\$1.00 / £, \$1.20 / £, \$1.50 / £, \$1.50 / £, \$1.60 / £\), \(\$1.70 / £\), and \(\$1.90 / £\). Assume the expiring futures price is equal to the spot \(\$ / £\) exchange rate.