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A currency futures price is currently $1.90 and has a volatility of 20%. The domestic and foreign risk-free interest rates are 6% and 3%, respectively.

A currency futures price is currently $1.90 and has a volatility of 20%. The domestic and foreign risk-free interest rates are 6% and 3%, respectively. Use a two-step binomial tree to derive a) the value of a three-month European call option on the currency futures with a strike price of $1.91, and b) the currency futures position which will hedge a short position in the European call option today.

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