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c) Money market hedge. Explain the implementation of this hedge and the cash flows at spot and at maturity. What is the effective exchange rate

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c) Money market hedge. Explain the implementation of this hedge and the cash flows at spot and at maturity. What is the effective exchange rate that Wainwright would have to pay if they used this alternative? 'What is the 55 cost of the machinery? d) Without using any prices, number, or calculations, describe how futures could be used to hedge this risk. Assume the currency futures market for sterling that is fairly priced. Explain in detail the implementation of this hedge and the cash ows f transactions you would have to make on day one and at the time of the account payable if you were to use a futures hedge. (How many contracts would you buy or sell, when would you remove the hedge, howfwhen would you pay the account payable, etc.) e) BNYM option hedge. 1. Use the BiackScholes model to see the implied volatility of the BNYM option premium using only the data in the case. In other words, what combinations of the given strike price, maturity, volatility, spot, and the USD LIBORfSterling LIBOR rates would generate the call option price. Include a screenshot of the option model. ii. Evaluate historical volatility over 3 months, 6 months, and 1 year, using actual spot $l prices (not from the case) over the past three months and past year starting from the actual day you download the data. httpm'www.investopedia.comfaskfanswerstIZ1015fhowcan-you-calculate-volatility- excel.asp iii. Look onlinex'Bloomberg for current actual quotations of one year $JE implied volatility. iv. Based upon what you found out about historical and market quoted volatility (above in ii and iii), compare it to the implied volatility you found (above in i) to see if the BNYM call option is fairly priced. v. Evaluate the overall hedged results of this strategy ($ cost) if the $l turns out to be 1.15, 1.20, 1.25, 1.30, 1.35, 1.40, 1.45 noting in what cases the option is exercised or not, and which exchange rate scenario of the above works out best for Wainwright if they hedged with the call option. (Be careful on this.)

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