7. Assume that you are importing German transformers and that you face the following:

n rB$

6%

n rI

Û 4%

n S($/askÛ) 1.5000 n F1–
2 ($/askÛ) 1.5400

a. How would you hedge? Would you buy euro forward or would you borrow dollars, buy euro spot, and invest in euro for six months?

b. Would it make any difference in your choice of hedging technique if you already had dollars that were earning 5 percent?