The UK Treasurer of Suits plc expects to receive a payment for wool exports to a customer in Munich in three months' time. Her marketing department has sold 1,000, "100% wool suits" for a delivered price of 250 Euros each. In the Financial Times on 10th June, she reads the following: Spot FX rate Three month forward FX rate - 3 month interest rate (annualized) 3 month interest rate (annualized) - 0.850 (/) 0.853 (/) r = 5 (9/16) r* = 7(1/16) (= 0.055625) (= 0.07625) Explain using the above data, how the Treasurer can hedge her receipts in Euros by: (a.) (i) (b) (c) (ii) taking forward cover taking money market cover. What would be the amount of sterling received if the Treasurer took an uncovered (open) position and the spot rates S in 3-months time are as follows (i) (ii) (iii) 0.653 (/) 0.658 (/) 0.640 (/) In each case, compare the hedged outcome with the uncovered outcome. Does the set of interest and exchange rates prevailing on 15th June conform with covered interest parity? If not, explain how equilibrium will be established in the relevant markets