Amazone will make a payment totaling 5 million next month to German suppliers. It can buy euro call options with a strike price of $1.22 at a premium of 2.0 cents per euro. The spot price of the euro is currently $1.25, and the euro is expected to trade in the range of $1.18 to $1.30. Amazone also can take a long position in the euro futures contract with futures price at $1.27.

1. How many options and futures contracts will Amazone need to protect its payment? Each contract size is 62,500 for options and 125,000 for futures and calculate the breakeven points

2. Diagram Amazone's profit and loss associated with the call option position and futures

position within its range of expected exchange rates. Ignore transaction costs and margins.

3. Calculate what Amazone would gain or lose on the option and the future within the range of expected future exchange rates at three points: $1.20, $1.23 & $1.28.