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A bank agrees to buy 1 million at 1 = $1.35 in one year, i.e., the bank buys 1 million with a forward contract. The

A bank agrees to buy 1 million at 1 = $1.35 in one year, i.e., the bank buys 1 million with a forward contract. The British pound and dollar interest rates are 1.5% and 2% respectively.

(a) Calculate the delta of this position.

(b) How can the bank hedge this forward contract to make it delta neutral?

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