complete work please

1. Suppose Boeing Corporation exported a Boeing 787 to British Airway and billed 15 million payable in one year (i.e., Boeing has a 15 million receivable in one-year). The money market rates, foreign exchange rates, and option prices are given as follows:

The U.S. one-year interest rate: 3% per annum

The U.K. one-year interest rate: 4.5% per annum

The spot exchange rate: $1.95/

Show the money market hedge strategy (i.e., through borrowing/lending) that the company can use to hedge the companys transaction exposure. Be sure to include the following.

(1) State which currency Boeing should borrow and which to invest.

(2) Calculate how much Boeing should borrow or invest.

(3) State the transactions needed to be done and the cash flows at t=0 and t=1 (i.e., today and one-year from today) by constructing a cash flow table. (points will be taken off if there is no cash flow table or the table does not follow my table format)

(4) State the dollar value of the net cashflow at t=1

2. Todays spot exchange rate is 1=$1.4870. Consider the following call option on euro, 147 December Euro which is selling at 0.85 per . For a trader who has a long position on the call option, answer the following questions.

(1) Determine the payoff and profit/loss if today is the expiration date

(2) On the following graph, draw and indicate CLEARLY the option payoff line and profit/loss line for the call option holder and INDICATE CLEARLYthe following information and the values on the graph, (a) The break-even spot rate for the call option; (b) The maximum loss for the call holder if the option is not exercise at expiration; (c) The spot price that makes the call option at-the-money.

(**For (2), you may hand draw the lines and indicate the points.)