1. A U.S. firm has a payable of 1.25 million due next month. The relevant 30-day futures price is $1.653 per pound. Relevant call options have a strike price of $1.663 at a premium of $.013 cents per pound. The spot price of the pound is currently $1.65, and the pound is expected to trade in the range of $1.625 to $1.7. The firms treasurer believes that the most likely price of the pound in 30 days will be $1.64.
   1. Is the U.S. firm more worried about the pound appreciating or depreciating?
   2. If the firm hedges with futures contracts, should the firm buy or sell futures?
   3. If the firm hedges with call options, should the firm buy or sell call options?
   4. Calculate the gain or loss on hedging for both the futures and the option for the following spot prices at expiration (per pound rather than per contract)
      1. 1.625
      2. 1.64
      3. 1.6513
      4. 1.6612
      5. 1.7010