ESPN owes the United Kingdom Rugby Association \(£ 6,250,000\) as payment for the exclusive licensing right to produce rugby matches on the European and US cable markets. ESPN expects the dollar price of the British pound to decrease when it buys \(£ 6,250,000\) to pay for its obligation but would like to set a cap on the dollar cost of its British pounds. Currently, the spot \(\$ / £\) exchange rate is \(\$1.50 / £\), and there is a call option on the April BP futures contract with an exercise price of \(\$1.50 /\) BP and contract size of 62,500 BP trading at \(\$0.02 / £\).

a. Explain how ESPN could cap the dollar cost of its British pounds in April with the British pound futures call option. How many contracts would ESPN need to buy to set up the cap?

b. Show in a table ESPN's April dollar cost from purchasing \(£ 6,250,000\), the intrinsic values of the BP futures call, the long call position's cash flow, and the call-capped dollar cost on the April expiration date for possible spot exchange rates of \(\$1.00 / £, \$1.20 / £, \$1.50 / £, \$1.50 / £, \$1.60 / £\), \(\$1.70 / £\), and \(\$1.90 / £\). Assume the expiring futures price is equal to the spot \(\$ / £\) exchange rate.