Problems in Financial Services & Trading Institutions

Financial Services & Trading Institutions Problems
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Question 1
A forward contract can be used hedge the exchange rate risk by eliminating the uncertainty over the exchange rate for future currency operations. Entering into a long forward contract would help the company to purchase the one million Canadian dollar in half a year. This would level up the current and forward exchange rates. Simply put, a forward contract would help the company to balance the current exchange rate with future exchange rate, thus, hedging the exchange rate risk. By purchasing the one million Canadian dollar within the time frame, the US Company could successfully reduce the gap between the two exchange rates which are effective hedging the risk.
If the company uses option, it could hedge an exchange rate by purchasing a call option that allows it to buy one million Canadian dollars at a specific exchange rate in half a year. A call option will enable the company to minimize risks that may be caused by the weakening Canadian dollar. If the Canadian currency weakens, the company would still benefit because the call option would work against the strong Canadian currency within the given period.
Question 2
* In the first case, the trader has the opportunity to purchase a call option of 180 days and take a short forward contract position within the same period. This is calculated as follows.
ST = terminal spot ra...