6. A firm expects a cash inflow of 500,000 in six months. Current exchange rate is $1.4750/. Firm will have to sell pounds in six months. Consider 3 possible spot prices in six months. 1. $1.20/ 2. $1.50/ 3. $1.80/

What kind of option, put or call, is appropriate to hedge with?

In which scenario(s) will the firm exercise their option? (Assume an exercise price of $1.48/)

Which one scenario does the firm hope will happen? I

n that one scenario, what is the option worth at maturity?