Please use the following information to answer

• You have account paybles: 5 m in one year.
• Interest_US: 6.10% per annum & Interest_UK: 9% per annum
• Spot exchange rate: $1.50/ & Forward exchange rate: $1.46/ (1-year maturity)
• Call option strike price: $1.46/ & Put option premium: $0.02/

1. How much will you receive in $ if you use the forward contract hedge? You must show all work to earn credit. No credit will be given without supporting work. (1 pt)

5,000,000 GBP x $1.46 = $7,300,000

$7,300,000 x 6.10% x 1 year = $445,300

$7,300,000 + $445,300 = $7.7453 million

2. Draw a graph for the forward contract hedge. (X axis is the spot rate in the future. Y axis is $ cash paid.) (0.5 pts)