question 50 casasophia and 48 Asteriod of BPP revision kit

QUESTION 50 CASASOPHIA

In the case of currency option we see the spot rate at the time of receipt that is in four months time. We see the difference between spot rate and exercise price to see if we want to exercise option or not and then calculate gain or loss (difference of spot rate and exercise price of option). In this question solution they exercised at both options, though 1.38 is not favorable as compared to spot rate (which in exam they assume future rate 1.3698)
Calculation for 1.36 is right.(i do get alternative method) we exercise at 1.36 because spot rate movement is not favorable that is 1.3689)

Lets say if four month spot rates are not given can we use forward rates as an alternative?provided PPP info is not given.

The second thing is why they don’t use purchasing power parity to calculate spot rate?

Which is
s1=1.3618*1.097/1.012=1.476
(1.476-1.3618)*4/12

For four months it will be 1.3618+.0380=1.3998

In question b)

Analysis they write the forward rate are calculated based on purchasing power parity …..but we calculate it using interest rate parity…am I missing on some thing…or I’m interpreting it wrong..

QUESTION 48 ASTERIOD

Here they asked about the impact of hedging on cost of equity

Solution write this way (which I am not getting)

“The extent of the impact will depend on the size and importance of the potential foreign currency exposure and the correlation of the currency with the market. If currency and company have same correlation with the market then the removal of risk will have little or no effect.”

This correlation thing I am not getting.

If we take casasophia question 50 above example
In which they hedged the income with forward rate. As inflation will fluctuate the forward rate so the income and NPV. And increase in inflation depreciate currency and remittance of income decreases.(how we will see the currency and company correlation with market.??

(i already searched history of open tuition question and didn’t find my answer so thats why i am posting them. i know i m asking more but Sir you are the only source for asking as i am selfstudy mom of 3 kids)

thanks alot for all your patience.