Describe how foreign currency options can be used for hedging in the situation considered in Section 1.7 so that

(a) ImportCo is guaranteed that its exchange rate will be less than 1.4600, and

(b) ExportCo is guaranteed that its exchange rate will be at least 1.4200. Use DerivaGem to calculate the cost of setting up the hedge in each case assuming that the exchange rate volatility is 12%, interest rates in the United States are 3%, and interest rates in Britain are 4.4%. Assume that the current exchange rate is the average of the bid and offer in Table1.1.

1.32. A trader buys a European call option and sells a European put option. The options have the same underlying asset, strike price, and maturity. Describe the trader's position. Under what circumstances does the price of the call equal the price of the pur?