Let's say we own a british company that exports a strawberries to the USA . In one year we will deliver 100 000 kg of strawberries for 7 US dollars a kilogram. Our cost of obtaining strawberries from the farms is 5 britsh pounds per kilogram. Let's assume that all cash flows happen exactly in one year.

a) explain the exchange rate risk and how this risk can be mitigated with a forward contract?

b) compute the theoretical one year forward exchange rate if USA interest rate is 2% and British pounds interest rate is 1.2%

c) Compute the hedged profit from the transaction in British pounds.