Question: Please ANSWER ALL questions NOT one on them 1. A firm expects a cash inflow of 570,000 in six months. Current exchange rate is $1.55/.

Please ANSWER ALL questions NOT one on them

1. A firm expects a cash inflow of 570,000 in six months. Current exchange rate is $1.55/. Firm will have to sell pounds in six months. Consider 3 possible spot prices in six months.

-$1.43/

-$1.52/

-$1.67/

A) What kind of option, put or call, is appropriate to hedge with?

B) Which scenario(s) will the firm exercise their option? (Assume an exercise price of $1.55/)

C) Which one scenario does the firm hopes will happen?

D) In that one scenario, what is the option worth at maturity?

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