You work as a broker for a US company that imports European foods into the US$.$ You just signed a deal with an Italian producer of olive oil. Under the terms of the contract, in three months you will receive $405,000$ liters of olive oil in exchange for $900,000$ euros. You are going to sell the entire shipment of olive oil to Fresh Foods Market at $$3/$liter$.$ All cash flows occur in exactly three months

a$.$

Suppose the one$-$year forward exchange rate is $$1\mathrm{.}10/.$ Describe how you could hedge the risk of the contract. In the figure you used for part a$)$ plot your total expected profits from the olive oil with forward hedge as a function of the exchange rate in three months. Label this line $$Forward Hedge.$$ Define position of the $$forward Hedge$$ line precisely on the graph

b$.$ Suppose that instead of using a forward contract, you consider using options. Suppose there are foreign exchange $($euro$)$ options available with exactly three months to expiration and a size of one euro. A three$-$month call option to buy one euro at a strike price of $$1\mathrm{.}1/$ is trading for $$0\mathrm{.}06/.$ Similarly a three$-$month put option to sell $1$ euro at a strike price of $$1\mathrm{.}1/$ is trading for $$0\mathrm{.}06/.$ How would you hedge your profits from the olive oil deal using option contracts? Which type of options would you use $$ put or call?

d$.$ In the figure from parts $($a$)$ and $($b$),$ plot profit profile from the olive oil deal with the options hedge as a function of the exchange rate in three months.