(6)Consider the following information:

90-day US interest rate...2.5%

90-day UK interest rate ....3.0%

90-day forward rate for the pound...$1.50

Spot rate for the pound.$1.52

(a)Assume that CSI company based in the US will receive 1,000,000 pounds in 90 days, would it be better off using the forward hedge or money market hedge? Substantiate your answer with appropriate quantitative evidence.

(b)Assume that the same CSI company will need 1000,000 pounds in 90 days and wishes to hedge its payables position. Would you recommend a forward hedge or a money market hedge? Explain your answer with relevant quantitative support.