Please answer 15, 16, and 17

Question 15.15. Which of the following is true? (Points : 3.3)

a. If the interest rate parity is holding, the two hedging methods, money market hedge and options hedge, are equivalent. b. If the purchasing power parity is holding, the two hedging methods, money market hedge and forward hedge, are equivalent. c. If the interest rate parity is holding, the two hedging methods, money market hedge and forward hedge, are equivalent. d. If the purchasing power parity is holding, the two hedging methods, money market hedge and options hedge, are equivalent.

Question 16.16. Boeing Corporation imported a Rolls-Royce jet engine for 8 million payable in one year. In the over-the-counter market, Boeing purchased a call option on 8 million British pounds with an exercise price of $1.45/ and a one-year expiration. The option premium is $0.05/. If the spot exchange rate is $1.48/ on the expiration date, what is the amount of U.S. dollars paid on the expiration date after the premium (the upfront cost)? The one-year U.S. interest rate is $2.5%. (Note the time value of money is considered in the upfront cost paid.) (Points : 3.3)

a. 11,600,000 b. $12,010,000 c. $12,250,000 d. $11,190,000 e. $11,430,000

Question 17.17. Assume the following information is available for the U.S. and Europe: U.S. Europe Nominal one-year interest rate 8% 5% Expected inflation 6% 2% Spot rate ----- $1.35/euro What shall the one-year forward rate for euro be if the interest rate parity holds? (Points : 3.3)

a. $1.30/euro b. $1.31/euro c. $1.40/euro d. $1.39/euro