Please could someone answer part iii (3) only.

QUESTION 11 ANSWER ALL PARTS OF THIS QUESTION a. Imagine that your company is going to receive certain amount of foreign currency (FC) in 6 months (this is, T1) from one of your foreign clients. You are going to use a future contract to hedge this exposure. The features of this contract are the following: 1) you do not have a future for the currency that you are exposed to, therefore you use another FC as a hedge; 2) the maturity of this future contract is one year (this is, T2); 3) the size of the future contract is one unit of the FC that you use as a hedge. Assume that the spot rate in 6 months can take any of the following three values in home currency (HC) units: 4, 5, or 6. In addition, assume that the cashflows that you can obtain from one future contract in 6 months can take any of the following three values in HC units: 5, 6, or 8. Assume that the three scenarios for the spot rate and for the future contract cashflows are equally likely. Note: Remember from the course slides that the cashflows of a future sale are defined as x Ce 12 Fr 1,72), where is the number of FC we short of the hedge in T2. Therefore, the cashflows from each future contract is free - fron,m2) REQUIRED: i. Define the concept of hedging in the context of currency markets. [5 marks] ii. Describe the main differences between future contracts and forward contracts. [8 marks] iii. Determine the expected value of the spot sale in 6 months, the expected cashflow in 6 months from shorting B = 2 units of the FC in one year, and the expected cashflows of the combination of the spot sale and the future contract. [15 marks] iv. Describe the statistical rule to hedge FC exposure using future contracts. [5 marks] QUESTION 11 ANSWER ALL PARTS OF THIS QUESTION a. Imagine that your company is going to receive certain amount of foreign currency (FC) in 6 months (this is, T1) from one of your foreign clients. You are going to use a future contract to hedge this exposure. The features of this contract are the following: 1) you do not have a future for the currency that you are exposed to, therefore you use another FC as a hedge; 2) the maturity of this future contract is one year (this is, T2); 3) the size of the future contract is one unit of the FC that you use as a hedge. Assume that the spot rate in 6 months can take any of the following three values in home currency (HC) units: 4, 5, or 6. In addition, assume that the cashflows that you can obtain from one future contract in 6 months can take any of the following three values in HC units: 5, 6, or 8. Assume that the three scenarios for the spot rate and for the future contract cashflows are equally likely. Note: Remember from the course slides that the cashflows of a future sale are defined as x Ce 12 Fr 1,72), where is the number of FC we short of the hedge in T2. Therefore, the cashflows from each future contract is free - fron,m2) REQUIRED: i. Define the concept of hedging in the context of currency markets. [5 marks] ii. Describe the main differences between future contracts and forward contracts. [8 marks] iii. Determine the expected value of the spot sale in 6 months, the expected cashflow in 6 months from shorting B = 2 units of the FC in one year, and the expected cashflows of the combination of the spot sale and the future contract. [15 marks] iv. Describe the statistical rule to hedge FC exposure using future contracts. [5 marks]