You work for Hong Kong Telecom and are considering ways to hedge a £10 million cash inflow to be received in three months. The current spot rate is equal to the three-month forward exchange rate at S0£/HK$ = F3£/HK$ = £0.1000/HK$. The current spot rate for the U.S. dollar is
S0$/HK$ = $0.1250/HK$.
a. The Hong Kong Exchange (HKEx) trades HK$/£ contracts that expire in five months with a contract size of £50,000. You estimate  = 1.02 based on the regression stHK$/£ = +futtHK$/£+e. The r2 of this regression is 0.97. How many pound contracts should you sell to minimize the risk of your hedged position?
b. An investment bank offers an HK$-per-$ futures contract with a 3-month maturity. You estimate  = 1.10 based on the regression stHK$/£ = +stHK$/$+e. The r2 of this regression is 0.42. What should be the dollar size of your futures position to minimize the risk of your hedged position?
c. The Chicago Mercantile Exchange (CME) trades HK$ futures contracts that expire in five months and have a contract size of HK$500,000. You estimate  = 1.06 based on the regression stHK$/£ = +futtHK$/$+e. The r2 of this regression is 0.36. How many CME HK$ contracts should you sell to minimize the risk of your hedged position?
d. Which of these contracts provides the highest quality hedge?