Biogen expects to receive royalty payments totaling 5 million next month. It is interested in protecting these receipts against a drop in the value of the pound. It can sell 30-day pound futures (futures contract size of 62,500 ) at a price of $1.6500 per pound or it can buy pound put options with a strike price of $1.6700 at a premium of 4.0 cents per pound. The spot price of the pound is currently $1.6500, and the pound is expected to trade in the range of $1.6250 to $1.7500. Biogen's treasurer believes that the most likely price of the pound in 30 days will be $1.6650. a. How many futures contracts will Biogen need to protect its receipts? How many options contracts?

b. Diagram Biogen's profit and loss associated with the put option position and the futures position within its range of expected exchange rates. Ignore transaction costs and margins. Label all axes, and all S($/ 1) prices.

Calculate Biogen's profit and loss associated with the put option position and the futures position within its range of expected exchange rates, including its most likely value. Ignore transaction costs and margins. c. S=$1.6250 S- S- OPTION Premium Exercise cost NORT1.OSS OUTFLOW PROLT 1.OSS TOTAL gain/loss