1. Do financial institutions have more liquidity risk than non-financial entities? Give reasons for your answer and an example that supports your opinion.
2. Google has an AR of 6,250,000 British pounds in 90 days. The current 90 day forward rate is 1.45 $/pound. Google decides to hedge the AR with a put option that has a strike price of 1.40 $/pound and a premium of .05 $/pound. Including hedging costs, what dollar value will Google realize using this hedging strategy if the exchange rate ends up at 1.20 $/pound? (CALCULATION REQUIRED)
A. $ 7,187,500.
B. $ 7,500,000.
C. $ 8,437,500.
D. $ 8,750,000.