Please answer b

Far-Flung Enterprises (FFE), a large multinational corporation has the ability to tap debt markets virtually anywhere in the world. Currently, FFE is seeking to borrow $1 billion for one year to help ease a temporary cash shortage in its U.S. operations. FFE could borrow this money from a syndicate of U.S. banks at an interest rate of 5% per year. Alternatively, FFE could borrow the pound-equivalent of $1 billion in the U.K. debt market at an interest rate of 7% per year. The spot exchange rate is .626 /$.

a) FFEs Chief Financial Officer expects the /$ exchange rate one year from now to be .650 /$. Accordingly, the CFO argues that it would be cheaper to borrow in the U.K. If the CFOs exchange rate forecast is correct, what would be the effective borrowing cost if FFE borrowed the pound-equivalent of $1 billion today, changed it to dollars, and then one year from now exchanged a sufficient number of dollars for pounds to repay the loan?

B) FFEs Treasurer, a more cautious type, warns that following the CFOs suggestion would expose the company to exchange rate risk. The Treasurer argues that, if the company is going to borrow in the U.K., it should simultaneously contract in the forward market to exchange a sufficient number of dollars for pounds one year from now to repay the loan. Given the prevailing interest rates and spot exchange rate, what do you think is the current one-year forward /$ exchange rate?