1. Boeing imported a Rolls-Royce jet engine for 6.5 mil payable in one year
   • The US interest rate 4.00% per annum
   • The UK interest rate 6.50% per annum
   • The Spot exchange rate $ 1.80/ today

The company decides to use options to hedge the risk of pound exchange one year later. What kind of options should the company buy? Put or Call?

Assume the strike price of the option is $1.82/ with a premium of $.02/ paid today. What is the dollar cost one year later if the spot rate then is 1.60 and 2.00 respectively?

How to utilize the money market tools to hedge the risk of pound exchange one year later? In particular, answer which loan (US or UK) to borrow and to lend? How much is the dollar cost one year later (a number you would know today)?