Please answer #3. I provided the previous information as a backup.

Part 1: Module 5: Hedging Interest Rate & FX Risk 1. In March, a U.S. Company is expecting to have to pay 1,250,000 Euros in May to its European customers, and wants to hedge against a rise in the value of the Euro relative to the U.S. dollar in June. At this time the spot exchange rate Euro is $1.2280 USD. The CME Group future settle rate for a May Euro FX futures contacts is 1 Euro- S1.2350 USD, with each futures contract for 125,000 Euros per contract. a. What position and how many contracts should the financial manager take for the hedge? Explain why. (hint # contracts-Amount of Euros Hedging / 125.000 Euros per contract), Type of Position Why this Position Number of Contracts b. Suppose in May the spot rate for the Euro changes to $1.2758 USD and the Euro futures FX price changes to $1.2828USD, Calculate the spot opportunity loss or gain for the company and the futures gain or loss. What is the net hedging result? Spot Gain or Loss Futures Gain or Loss Net Hedging Result (Futures Gain or Loss - Spot Gain or Loss) 2. In March, Greg Young, an insurance company portfolio manager for the Stay Solid Insurance Corporation has a stock portfolio of S500 million with a portfolio beta of 1.20. The portfolio manager plans on selling the stocks in the portfolio in June to be able to pay out funds to policyholders for annuities, and is worried about a fall in the stock market. In March, the CME Group E-Mini S&P 500 Futures contract index is 2752.75 for a June futures contract (S50 multiplier for the contract) What type of futures position should be taken to hedge against the stock market going down and how many future contracts are needed for this hedge? [Hint: # contracts-Amount Hedged / Futures Index Price Multiplier] x Beta Portfolio a. Type of Position Explain why # of Contracts b. Suppose in June the stock market (S&P500 index) rises by 10% and the S&P500 futures index rises by 10% as well, what is the portfolio manager's opportunity loss (gain) on his portfolio, and his futures gain (loss) and the net hedging result? Futures Gain or Loss Spot Gain or Loss Net Hedging Result c. Would Greg have done better hedging instead by getting put options (options to sell) on S&P500 Mini Futures Contracts? Explain why or why not. Yes or NoExplain why