$10$ ptsSuppose you are in the business of importing and exporting in India. You want to hedge your transaction exposure. You explore various alternatives and gather the following information:Interest Rates are as follows:iINDIA $=7\mathrm{.}63\%$ per yeariCHINA $=11\mathrm{.}25\%$ per yearForeign Exchange $($spot and forward$)$ rates are as followsForeign Exchange $($FX$)$ Rate: $($INR$/$CNY$)$

$\backslash$table$[[$Today$($Spot$)1-$Month,$2-$Month,$3-$Month,$4-$Month,$6-$Month,$1-$year,$],[1\mathrm{.}3025,1\mathrm{.}2986,1\mathrm{.}2948,1\mathrm{.}2910,1\mathrm{.}2873,1\mathrm{.}2801,1\mathrm{.}2601]]$

Option Information

Call Options Put Options

$4-$month Option $6-$Month options $,4-$month options $,6-$month options

FX Rate: $($INR$/$CNY$)$ FX Rate: $($INR$/$CNY$)$ FX Rate: $($INR$/$CNY$)$ FX Rate: $($INR$/$CNY$)$

Premium:$0\mathrm{.}0085$

Spot rate: $1\mathrm{.}3025$

Exercise Price:

$1\mathrm{.}2910$

St$(1)$:$1\mathrm{.}3150$

Premium: $0\mathrm{.}0065$

Premium: $0\mathrm{.}0085$

Premium: $0\mathrm{.}0065$

Spot rate: $1\mathrm{.}3025$

Spot rate: $1\mathrm{.}3025$

Spot rate: $1\mathrm{.}3025$

Strike Price: $1\mathrm{.}2865$

Strike Price: $1\mathrm{.}2910$

Exercise Price:

St$(1)$:$1\mathrm{.}3250$

St$(1)$: $1\mathrm{.}3150$

$1\mathrm{.}2865$

St$(2)$: $1\mathrm{.}2850$

St$(2)$: $1\mathrm{.}2650$

St$(2)$: $1\mathrm{.}2850$

St$(1)$: $3250$

St$(2)$: $1\mathrm{.}2650$

Futures Information:

FX Rate: $($INR$/$CNY$)$

$\backslash$table$[[$Contract Month,Spot Rate,Futures Rate$],[$Today $($April Contract$),1\mathrm{.}3025,1\mathrm{.}2825],[3-$Months Away $($July Contract$),1\mathrm{.}2910,1\mathrm{.}2910],[4-$months away $($August Contract$),1\mathrm{.}2873,1\mathrm{.}2873],[6-$Months away $($October$,1\mathrm{.}2801,1\mathrm{.}2801]]$

Your associated cash flows for import are CNY $1,250,000$ in $6$ months. Conduct a futures hedge for transaction exposure associated with the cash flows gained from export explaining the process and showing your net CF after hedging. Assuming in the future when your receive cash flows, spot rate at that time is $[St(1)$ how do you feel about your hedging decision? Clearly show your steps with formulas where applicable. Explain clearly the process of hedging associated with import along with the cash flows being hedged. You will lose points if you do not show process and explain the steps.