10) Suppose that S0$/=1.25$/,F1$/=1.20$/,i=11.56% and iS=9.82%. You are to receive 100,000f on a shipment of goods in one year. As a US-based firm you want to avoid foreign exchange risk. a) Form a forward market hedge. Identify which currency you are buying and which currency you are selling forward. When will currency actually change hands? Today? Or, in one year? b) Form a money market hedge that replicates the payoff on the forward contract by using the spot currency and the Euro-currency markets. Identify each contract in the hedge. Does this hedge eliminate the foreign exchange risk? c) Are the currency and Euro-currency markets in equilibrium? How would you arbitrage the difference from the parity condition