Suppose ESPN is expecting revenues of $10,000,000$ BP next July $($one year from now: T $=1)$ from its United Kingdom Rugby sports productions division. Fearing that exchange rates could decrease when it converts its $10,000,000$ BP$,$ ESPN would like to hedge the dollar value of its revenue. Currently, the spot $$/$ exchange rate is $$1\mathrm{.}50/,$ the US risk$-$free rate is $3\%,$ the British risk$-$free rate is $3\%,$ and the one

a$.$ Explain how ESPN could hedge the dollar value of its revenue using a forward contract.

b$.$ Explain how ESPN could alternatively hedge its revenue of $10,000,000$ BP against exchange$-$rate risk by using the money market. Assume ESPN can borrow BPs at $3\%$ and dollars at $3\%.$

c$.$ Suppose in July, the BP futures contract trading on the CME is at $$1\mathrm{.}50/($contract size $=62,500$ BP$).$ Show how ESPN could hedge its revenue against exchange$-$rate risk by using the contract expiring next July. Assume that at the futures expiration, ESPN will close its futures position at an expiring futures price equal to the spot exchange rate and convert it BP revenue at the spot exchange rate. Evaluate the position by assuming possible spot $$/$ exchange rate at expiration of $$1\mathrm{.}45/$ and $$1\mathrm{.}55/.$