Suppose that the U.S. Boeing Corporation has just exported a Boeing 747 to British Airways and billed 10 million, payable in one year. The Assistant Treasurer at the Corporation oversees finding ways to hedge its foreign currency risk of British pounds. Lately, the pounds are very volatile against U.S. dollars. The Assistant Treasurer just finished collecting the spot, forward, and currency options quotes from the Bloomberg terminal, which are as follows:

Spot exchange rate ($/): 1.50

Forward exchange rate ($/) 1 year: 1.46

U.S. interest rate (p.a.): 6.10% bid, 6.12% ask

U.K. interest rate (p.a.): 8.87% bid, 9.00% ask

1. Determine the Options Market Hedge, by calculating and showing the:
   1. Gross Dollar Proceeds
   2. Option Cost - what premium is used here?)
   3. Net Dollar Proceeds

2. Please advise, for this transaction, is a call or put used? And is it a bid or ask?

(refer to the table for the premiums below)

\begin{tabular}{|c|c|c|} \hline \multicolumn{3}{|c|}{ Call Options (\$/:) } \\ \hline Strike & Bid & Ask \\ & & \\ \hline$1.30 & 0.040 & 0.041 \\ \hline$1.40 & 0.031 & 0.034 \\ \hline$1.46 & 0.028 & 0.030 \\ \hline$1.50 & 0.021 & 0.026 \\ \hline$1.60 & 0.196 & 0.020 \\ \hline \end{tabular} \begin{tabular}{|c|c|c|} \hline \multicolumn{3}{|c|}{ Put Options (\$/:) } \\ \hline Strike & Bid & Ask \\ & & \\ \hline$1.30 & 0.003 & 0.005 \\ \hline$1.40 & 0.005 & 0.010 \\ \hline$1.46 & 0.010 & 0.020 \\ \hline$1.50 & 0.020 & 0.030 \\ \hline$1.60 & 0.030 & 0.040 \\ \hline \end{tabular}