1. Without considering the fact that the money deposited in the margin account earns interest, a hedger might take a wrong hedging position which turns it into a speculative one. True False

2. We observe where is the direct forward exchange rate, is the domestic risk-free rate, is the foreign riskfree rate, T is the maturity of the forward contract, is the direct spot exchange rate.

Choose an action from below to arbitrage:

		At time 0, borrow 1000 domestic currency at rd for T.
		At time 0, we convert the foreign currency we borrowed into domestic currency.
		At time 0, borrow 1000 foreign currency at rf for T.
		Long forward: buy the foreign currency at T at F0 using domestic currency received from the domestic bank.