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

rB

$ 6%

rI¤4%

S($/ask¤) 1:2000 F1/2($/ask¤) 1:2400 a How would you hedge? Would you buy euro forward or would you borrow dollars, buy euro spot, and invest in euro for 6 months?
b Would it make any difference in your choice of hedging technique if you already had dollars that were earning 5 percent?