Problem: AIFS is thinking about hedging -risk of hotel bookings for US students travelling to EU.

Assume they plan for 25,000 students and need 1000/student. Financials assume $1.22/ , and are produce a profit of $5M at that cost level.

Provide calculation data, and graph the P&L assuming this exchange rate varies from $1.01/ to $1.48/ and no hedging.

Repeat Part a assuming 100% hedge with forward contracts (specify long or short), when the forward price is $1.22/ .

Repeat Part a, assuming 100% hedge with options (specify puts or calls, long or short), with a strike price of $1.22/ . Assume that the cost is 5% of the contract value.