2. (a) Suppose you own a Japanese motorbike company and you recently started to export your motorbikes to US. You expect to receive $70,000,000 in 180 days. The following table summarises the spot, forward and the 6-month interest rate spreads for the two markets: Spot rate (/$) Forward rate (/$) Bid 82.67 Ask 82.71 82.5895 82.6495 $ Interest Rate (%) Interest rate (%) 0.91 1.11 0.46 0.58 i. Describe the nature and extent of your foreign exchange risk. 6 marks ii. Describe the two ways that can be employed to eliminate the foreign exchange risk of this transaction. hedging and speculation 6 marks iii. Show which of the two methods in (ii) is superior. iv. 6 marks Assuming that the USD interest rate and the exchange rate are correct, show with calculations what JPY interest rate would make you indifferent between the two alternative hedging methods. 7 marks