AU.S.importerofaudioequipmentowes800,000toaU.K.supplierin12months.Currently, the exchange rate is $1.60/, and the importer believes that in 12 months the exchange rate will beeither$1.80/or$1.55/.Theannualinterestrateis0.5%intheU.S.and2%inU.K. Suppose now the importer wants to use delta hedge. Show how the US importer can do a delta (complete hedge).The call optionpremiumwithastrikepriceat$1.75/is$0.05/.Theputoptionpremiumwithastrikepriceat$1.75/is$0.03/.Thecontractsizeforbothcallandputoptionsis50,000.

1. Calculate hedge ratio

2. calculate number of option contracts the firm needs in order to do a delta hedge.