You expect to receive a payment of £1,000,000 in British pounds after six months. The pound is currently worth $1.60 (i. e., £1 $1.60), but the six-month futures price is $1.56 (i. e., £1 5 $1.56). You expect the price of the pound to decline (i. e., the value of the dollar to rise). If this expectation is fulfilled, you will suffer a loss when the pounds are converted into dollars when you receive them six months in the future. a) Given the current price, what is the expected payment in dollars?
b) Given the futures price, how much would you receive in dollars?
c) if, after six months, the pound is worth $1.35, what is your loss from the decline in the value of the pound?
d) To avoid this potential loss, you decide to hedge and sell a contract for the future delivery of pounds at the going futures price of $1.56. What is the cost to you of this protection from the possible decline in the value of the pound?
e) if, after hedging, the price of the pound falls to $1.35, what is the maximum amount that you lose? Why is your answer different from your answer to part (c)?
f) if, after hedging, the price of the pound rises to $1.80, how much do you gain from your position? g) how would your answer to part (f) be different if you had not hedged and the price of the pound

Exercise 18-15 sheffield appliance center is an experienced home appliance dealer. sheffield appliance center also offers a number of services for the home appliances that it sells. assume that sheffield appliance center sells ovens on a standalone basis. sheffield appliance center also sells installation services and maintenance services for ovens. however, sheffield appliance center does not offer installation or maintenance services to customers who buy ovens from other vendors. pricing for ovens is as follows. oven only $790 oven with installation service 850 oven with maintenance services 970 oven with installation and maintenance services 990 in each instance in which maintenance services are provided, the maintenance service is separately priced within the arrangement at $180. additionally, the incremental amount charged by sheffield appliance center for installation approximates the amount charged by independent third parties. ovens are sold subject to a general right of return. if a customer purchases an oven with installation and/or maintenance services, in the event sheffield appliance center does not complete the service satisfactorily, the customer is only entitled to a refund of the portion of the fee that exceeds $790. assume that a customer purchases an oven with both installation and maintenance services for $990. (b) indicate the amount of revenue that should be allocated to the oven, the installation, and to the maintenance contract.