Part I: Hedging receivables (15 pts) Honeywell sold an aerospace system to a customer in the UK and billed 20 million payable in one year. Honeywell is concerned with the pound proceeds from international sales and would like to control exchange rate risk. The current spot exchange rate is S1.30/ and one-year forward exchange rate is S1.27/ at the moment. Honeywell can buy a onc-year put option on 20 million with a strike price of $1.32/E for a premium of S0.02 per pound. It can also buy a one-year call option on 20 mlon with a strike price of S1.29/E for a premium of $0.15 per pound. Currently, one-year interest rate is 6.1% in the U.K. and 5.0% in the U.S a. Compute the guaranteed dollar procceds from the sale if Honcywell decides to hedge using a forward contract. b. I Honeywe decides to hedge using money market instruments, what action does Honeywell need to take? What would be the guaranteed dollar proceeds from the sale in this case If Honeywell decides to hedge using options on pounds, what option (put or call) will Honeywell use? And what would be the 'expected' dollar proceeds from the aircraft sale? Assume that Honeywell regards the current forward exchange rate as an unbiased c. predictor of the future spot exchange rate d. Based on the available information and your calculations above, what is your recommendation to Honeywell for a best strategy (forward hedge vs money market hedge vs options hedge)? Why? e. Other things being equal, at what forward rate would Honeywell be indifferent between the forward and money market hedge