Suppose Boeing Corporation exported a Boeing 787 to British Airway and billed 20 million payable in one year (i.e., Boeing has a 20 million receivable in one-year). The money market rates, foreign exchange rates, and option prices are given as follows:

The U.S. one-year interest rate: 2% per annum

The U.K. one-year interest rate: 3.5% per annum

The spot exchange rate: $1.32/

One-year forward rate: $1.2985/

Call option: exercise rate: $1.31, premium: $0.015/

Put option: exercise rate: $1.31, premium: $0.02/

(3) Suppose Boeings analyst predicts that the exchange rate between USD and UK pound in 1 year is between $1.32/ and $1.33/. (To receive full credit, you need to answer the questions qualitatively and quantitatively.)

(a) At which exchange rate will Boeing be indifferent between Money Market Hedge and Option Market Hedge?

(b) If the analysts prediction is correct, among the Forward Market Hedge, Money Market Hedge, and Option Market Hedge, which one is preferable and why?