The current spot exchange rate is $1\mathrm{.}27$ $$/$BP$.$ Your customer is an importer from Britain. He will have

to pay $10$ million BP in three months. The following currency options $($prices are in Dollars for BP

delivery$)$ are available:

Which option will you recommend for hedging the BP liability $($Put or Call$)?$ Explain the customer the

difference between the two strikes by comparing them to an unhedged position. In your explanation

use as an example exchange rates of $1\mathrm{.}35$$$/$BP and $1\mathrm{.}24$$$/$BP in three months. Show $($calculate$)$ the

payable total cost under the two exchange scenarios and three hedging choices $(1$: unhedged, $2$: $1\mathrm{.}25$

strike hedge and $3$: $1\mathrm{.}30$ hedge$)$; you can disregard the time value of money of the premium

payment.