QUESTION 11 April 19, 2020, British Pound Option Prices are in US cents per pound. Each option contract is worth 62,500 pounds. Options expire on the 19th of each month. Strike Price July 1.42 Calls June 1.39 1.02 0.68 May 0.52 Puts June 1.06 July 121 144 May 0.88 0.42 0.20 145 146 232 The 30 days borrowing and lending LIBOR rates are as below. 30-day dollar lending rate per annum 30-day pound lending rate per annum 30-day dollar borrowing rate per annum 30 day pound borrowing rate per annum 4000% 3 885% 5.000% 5 000% Required: a. What is the break even exchange rate for the put option that expires on June 19, 2020 and has a strike price of 51.460/E7(1 mark) b. Jasper Pernik is a currency speculator. Jasper thinks the USD/pound exchange rate will move to 51.400/ by June 19. 2020. Which option should he use and what is his expected maximum profit? (2 marks) Widget Maker Company is a UK based exporter that is due to receive 52.160,000 US by 19th of July. The CFO of Widget Maker Company is concerned about exchange rate risk and wants to hedge the future USD amount receivable Answer the following How can the CFO of Widget Maker Company use options to hedge against foreign exchange risk if the CFO thought the pound would appreciate before the USD receipt is due? (1 mark) Assuming a strike price of 1.4400 USD per pound, how many option contracts would the CFO need to implement the hedging straty you describe above, and what would the total premium cost Widget Maker Company? (1 mark)