QUESTION $2(24$ marks$)$FutureFurn Plc is a furniture manufacturer based the UK$,$ using $$ as its functional currency. It isnow the end of June.US customerA US customer has placed an order for multi$-$function couches totalling US $ $5$ million, withFutureFurn Plc invoicing the US customer in US $$.$ The payment terms with the US customerare to receive US $ in three months time.US supplierFutureFurn Plc has placed an order for pivot$-$hinges to be used in manufacturing items from aUS supplier. The order amounts to US $$200000,$ and payment must be made in US $ in threemonths time.Information gathered in respect of exchange rates and interest rates are detailed below:Exchange rates US $$/1$Spot $1\mathrm{.}2800-1\mathrm{.}3186$One month forward $1\mathrm{.}3-1\mathrm{.}5$ cent premiumThree months forward $2\mathrm{.}4-2\mathrm{.}7$ cent premiumInterest rates $($annual$)$ Loan DepositUK $8\mathrm{.}00\%7\mathrm{.}00\%$USA $5\mathrm{.}00\%3\mathrm{.}50\%$Currency futures are trading at $1\mathrm{.}2700.$ Each futures contract is for $62,500.$Required:$2\mathrm{.}1$ Calculate the $$ receipt that FutureFurn Plc will expect to receive in $3$ months from theUS customer if it:$($a$)$ hedges the risk using the forward market $(2$ marks$)($b$)$ hedges the risk using the money market $(3$ marks$)2\mathrm{.}2$ Calculate the $$ payment that FutureFurn Plc is expected to pay in $3$ months to the USsupplier, if it hedges the risk using currency futures, assuming the market price forSeptember futures in September is $1\mathrm{.}2650$ and the spot rate is $1\mathrm{.}2550.$The number of futures contracts should be rounded up$.(6$ marks$)$MAC$4865/$Assignment$\_0392\mathrm{.}3$ With reference to financial risk management, hedging can involve the reduction orelimination of financial risk by passing that risk onto someone else. Internal hedgingtechniques involve reducing risk by creating an offsetting position that tends to cancelany risks.$($a$)$ Discuss the benefits of hedging. $(4$ mark$)($b$)$ Discuss arguments against hedging. $(4$ mark$)2\mathrm{.}4$ With reference to the scenario above, discuss how FutureFurn Plc could make use ofinvoicing in home currency as an internal hedging technique and comment on thepotential problems or issues when using this hedging technique. $(5$ marks$)[$Question total: $24$ marks$][$CIMA adapted$]$