HereWeGo is a UK company that trades in a range of communication devices. It sells these products in the UK and in the USA, where it also imports its raw materials. In the past, the relatively low level of trading with US companies has meant that Lancaster has not hedged its foreign currency exposure. However, due to increases in the level of trade conducted in the USA, Lancasters finance director is now considering the use of a variety of hedging instruments. Receipts and payments in respect of the following exports and imports (designated in the currencies shown) are due in 6 months time: Receipts from exports : $ 800,000 Payments due to US companies: $ 2,350,000 Current spot rate: $1.6666 - 1.6720/ 6-month forward premium 2.49c - 2.65c

Sterling currency options (standard contract size 31,250) are currently priced as follows (with premiums, payable up front, quoted in cents per ):

Calls Puts StrikePrice September December September December $1.63 3.67 4.59 0.06 1.69 $1.65 2.35 3.07 1.63 3.43 $1.67 1.82 2.65 2.04 5.55

Sterling currency futures (standard contract size 62,500) are currently priced as follows: September $1.6555/ December $1.6496/ Assuming, todays date is 30 June 2013, and the spot rate in six months time will be $1.6400 - 1.6454/,

(a) Calculate HereWeGos net foreign currency exposure, and the outcome achieved, using: (i) a forward market hedge; (ii) exchange-traded currency options (hedging to the nearest whole number of contracts) so as to guarantee no worse an exchange rate than the current spot rate; (iii) currency futures contracts (hedging to the nearest whole number of contracts) and assuming the relevant futures contract is trading at $1.6400 in six months time;