Question: hope the answer include the formula and explanation QUESTION 4 (20 MARKS) You plan to visit London, U.K. in three months to have a summer

hope the answer include the formula and explanation

QUESTION 4 (20 MARKS) You plan to visit London, U.K. in three months to have a summer vacation. You expect to incur the total cost of 5,000 for lodging, meals and transportation during your stay. As of today, the spot exchange rate is RM5.56/ amd the three-month forward rate is RM5.6/ . You can buy the three-month call option on with the exercise rate of RM5.7/E for the premium of RM 0.5 per . Assume that your expected future spot exchange rate is the same as the forward rate. The three-month interest rate is 2.8 percent per annum in Malaysia and 1 percent per annum in the U.K. Calculate your expected ringgit cost of buying 5,000 if you choose to hedge via call option on a (10 marks) Calculate the future ringgit cost of meeting this obligation if you decide to hedge using a forward contract. b. (2 marks) At what future spot exchange rate will you be indifferent between the forward and option market hedges? . (4 marks) Illustrate the future ringgit costs of meeting the payable against the future spot exchange rate under both the options and forward market hedges. d. (4 marks)

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