Trident CFO, Maria Gonzalez, has just complete a purchase of communication equipment from a British firm for $1$ million due in three months. Suppose that:

The spot rate is $$\frac{1\mathrm{.}7640}{}.$ Three$-$month forward rate is $$\frac{1\mathrm{.}7540}{}.$

UK three$-$month borrowing rate is $10\mathrm{.}0\%(2\mathrm{.}5\%$ per quarter$).$ US threemonth investing interest rate is $6\mathrm{.}0\%(1\mathrm{.}5\%$ per quarter$)$

Three$-$month call and put option for $1$ million with strike price $$\frac{1\mathrm{.}75}{}$ is $1\mathrm{.}5\%$ premium

Trident's cost of capital is $12\%(3\%$ per quarter$)$

Problem $1$ Maria decides to hedge with options. Which option does she need? $(0\mathrm{.}2$ point$)$

Buy a call option

Write a call option

Buy a put option

Write a put option

Answer: A $-$ Buy a call option

Problem $2$ What is the cost of the option in U$.$S$.$ dollar per pound? $(0\mathrm{.}3$ point$)$

Problem $3$ What is the breakeven spot exchange rate $($Breakeven withthe forward hedge$)?(0\mathrm{.}3$ point$)-$