An FI has assets denominated in British pounds of $$125$ million and pound liabilities of $$100$ million. The exchange rate of dollars for pounds is currently $$1\mathrm{.}60/.$

a$.$ What is the FI's net exposure?

b$.$ Is the FI exposed to a dollar appreciation or depreciation?

c$.$ How can the FI use futures or forward contracts to hedge its FX rate risk?

d$.$ If a futures contract is currently trading at $$1\mathrm{.}55/,$ what is the number of futures contracts that must be utilized to fully hedge the FI's currency risk exposure? Assume the contract size on the British pound futures contract is $62,500.$

e$.$ If the British pound exchange rate falls from $$1\mathrm{.}60/$ to $$1\mathrm{.}50/,$ what will be the impact on the FI's cash position?

f$.$ If the British pound exchange rate falls from $$1\mathrm{.}55/$ to $$1\mathrm{.}45/,$ what will be the impact on the FI's futures position?

g$.$ Using the information in parts $($e$)$ and $($f $),$ what can you conclude about basis risk?