• You have account receivables: 5 m in one year.
• Interest_US: 6.10% per annum & Interest_UK: 9% per annum
• Spot exchange rate: $1.50/ & Forward exchange rate: $1.46/ (1-year maturity)
• Put option strike price: $1.46/ & Put option premium: $0.02/

1. How much will you receive in $ if you use the forward contract hedge? You must show all work to earn credit. No credit will be given without supporting work. (1 pt)

$1.46 x 5,000,000 = $7,300,000

2. How much will you receive in $ if you use the money market hedge? You must show all work to earn credit. No credit will be given without supporting work. (1 pt)

? GBP x 1.09 (UK interest rate) = maturity value of 5,000,000 GBP

5,000,000/1.09 = 4,587,155.96 GBP

4,587,155.96 GBP x 1.50 (spot exchange rate) = $6,880,733.94 deposit for one year at 6.10%

$6,880,733.94 x 1.0610 = $7,300,458.72 (maturity value of deposit)

Receive $7,300,458.72 if money is used in market hedge

3. How much will you receive in $ if you use the put option hedge? You must show all work to earn credit. No credit will be given without supporting work. (1 pt)

$0.02 x 5,000,000 = $100,000

($1.46 x 5,000,000) - $100,000 = $7,200,000

If spot exchange rate is less than 1.46, then $7,200,000

If spot exchange rate is greater than 1.46, then the option will not be exercised

4. Find out point 1 and point 2. Show all work!

ONLY NEED ANSWER TO QUESTION 4!