1.A small U.S. firm, sold cell phone components to a Japanese firm, and will receive payment of 1,000,000 (1 million yen) in one year.Elliott Company's bank quotes the information below:

The spot exchange rate is e_/$ = 110.00/$

The 1-year interest rate on dollars is i_US = 3.00%

The 1-year interest rate on yen is i_J = 1.00%

The 1-year forward rate on yen is f_/$ = 105.00/$

In addition, Elliott Company contacts forecasters in the market and concludes:

The 1-year-ahead expected exchange rate on yen is e^ex_/$ = 110.00/$

A.Does covered interest rate parity hold for the information given?If so, explain why.If not, explain what the forward rate would be when covered interest parity holds and other variables remain unchanged.

B.Does uncovered interest rate parity hold for the information given?If so, explain why.If not, explain what the expected future spot rate would be when uncovered interest parity holds.

C.Explain how Elliott Company would use forward contracts to hedge the yen cash flows from this transaction.Be sure to indicate exact amounts of each currency involved.