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Assume that you use Purchasing Power Parity (PPP) to forecastexchange rates. Suppose you expect that inflation in the UK thenext year will be 1.0%, and inflation in the US will be 5.0%.Assume that you are considering the purchase of five one-yearBritish pound call options from PHLX with a strike price of$1.265/£. The premium is $0.014 per £. The spot rate of the poundis $1.25/£ and the one-year forward rate is $1.26/£ today.1. Based on your PPP analysis, what will be your expected spotexchange of $/£ in one year?2. Graph the call option cash flow schedule at maturity. Markoption’s strike price and break-even point.c. Determine your expected profit (or loss) if the poundappreciates to your expected future spot rate.d. Determine your expected profit (or loss) if the poundappreciates to the forward rate.