You are a sales representative of an Estonian company that exports local mushrooms to United Kingdom. Under the terms of the contract, in one year you will deliver 50 tons (=50 000kg) of mushrooms for 3.5 pounds a kilogram. Your cost of obtaining mushrooms from the mushroom pickers from Vrumaa County is 2.50 EUR per kilogram. You may assume that all cash flows occur in exactly one year. Questions: a) explain the exchange rate risk here and how this risk can be mitigated with forward contract? b) compute the theoretical one year forward exchange rate if UK interest rate is 2% and EUR interest rate is 1.2% c) Compute the hedged profit from the transaction in euros