A German bank issues a one-year 2,000,000 CD at 2%. It uses these funds to make a one-year US $- denominated loan to ABC Corporation at 4%. Current exchange rate is $1.15/. The one-year forward rate (F$/) = $1.17/. How can the bank manager hedge the exchange rate exposure?

• The manager can buy 2,000,000 forward at the forward rate of $1.17/.

• The bank manager can sell 2,080,000 forward at the forward rate of $1.17/.

• The bank anager can buy $2,392,000 forward at the forward rate of $1.17/.

• The bank manager can sell $2,392,000 forward at the exchange rate of 1.17/.