A U.S. importer of electronic equipment owes 800,000 to a U.K. supplier in 12 months. Cur- rently, the exchange rate is $1.60/, and the importer believes that in 12 months the exchange rate will be either $1.80/ or $1.55/. The annual interest rate is 0.5% in the U.S. and 2% in U.K. b4) Suppose now the U.S. importer wants to use delta hedge. Show how the U.S. importer can do a Delta hedge (complete hedge) using options. b4-a) (5 points) Calculate Hedge Ratio. Solution: b4-b) (5 points) Calculate number of option contracts the firm needs in order to do a delta hedge. Solution: A U.S. importer of electronic equipment owes 800,000 to a U.K. supplier in 12 months. Cur- rently, the exchange rate is $1.60/, and the importer believes that in 12 months the exchange rate will be either $1.80/ or $1.55/. The annual interest rate is 0.5% in the U.S. and 2% in U.K. b4) Suppose now the U.S. importer wants to use delta hedge. Show how the U.S. importer can do a Delta hedge (complete hedge) using options. b4-a) (5 points) Calculate Hedge Ratio. Solution: b4-b) (5 points) Calculate number of option contracts the firm needs in order to do a delta hedge. Solution