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Assume the following information: 360day U. interest rate = 4% 360day British interest rate = 5% 360day forward rate of British pound = $2.00/ Spot...
Assume the following information:
360‑day U.S. interest rate = 4%
360‑day British interest rate = 5%
360‑day forward rate of British pound = $2.00/£
Spot rate of British pound = $2.02/£
Hampshire Co. has account payables of 200,000 British pounds in 360 days. It wishes to hedge this payables position.
A. Set up a forward market hedge for the above account payable. (5 points)
B. Set up a money market hedge for the above account payable. (5 points)
C. Compare the above hedges (in terms of costs). Which hedge would you recommend? (2 points)
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