1) Trident the same U.S.-based company discussed in this chapter, has concluded a second larger sale of telecommunications equipment to Regency (U.K.). Total payment of 2,000,000 is due in 90 days. Given the following exchange rates and interest rates, which of the following statements about position and dollar receipt of forward hedge is correct?

Assumptions		Value
90-day A/R in pounds		2,000,000.00
Spot rate, US$ per pound ($/)		$1.5610
90-day forward rate, US$ per pound ($/)		$1.5421
3-month U.S. dollar investment rate		4.000%
3-month U.S. dollar borrowing rate		6.000%
3-month UK investment interest rate		4.500%
3-month UK borrowing interest rate		8.000%
Put options on the British pound: Strike rates, US$/pound ($/)
Strike rate ($/)		$1.55
Put option premium		1.500%
Strike rate ($/)		$1.54
Put option premium		1.000%
Strike rate ($/)		$1.55
Call option premium		2.500%
Trident's WACC		9.000%
Maria Gonzalez's expected spot rate in 90 days, US$ per pound ($/)		$1.5431

Select one:

a. Short 2,000,000 in forward; receive $$1,542,100.00 in 90 days.

b. Long 2,000,000 in forward; receive $$1,542,100.00 in 90 days.

c. Long 2,000,000 in forward; receive $$3,084,200.00 in 90 days.

d. Short 2,000,000 in forward; receive $$3,084,200.00 in 90 days.

e. Short 2,000,000 in forward; receive $$3,00,000.00 in 90 days.

2) A bank is considering using a three against six $2,000,000 FRA to cover its potential loss. The purpose of the FRA is to cover the interest rate risk caused by the maturity mismatch from having made a six-month Eurodollar loan and having accepted a three-month Eurodollar deposit. The agreement rate with the buyer is 4.6%. There are actually 92 days in the three-month FRA period. Which one of following statements is correct?

Select one:

a. If the settlement rate is 4.8% three months from today, then the buyer pays the seller.

b. If the settlement rate is 4.8% three months from today, then the FRA is worth $1009.84

c. Without the FRA, the bank will lose if the market interest rate drops at the end of three months.

d. To hedge the risk caused by maturity mismatch, the bank could take the buyers position if it uses the Euro-Dollar Interest Rate Futures instead.

e. To hedge the loss caused by maturity mismatch, the bank should be a seller of the FRA.