Carlos Toro is an FX trader at Caravela Hedge Fund. He is bullish the Mexican peso (MXN), where he can earn an annual interest rate of 4.00% from Aztek Bank. He is also bearish the Braziian real (BRL) where he can borrow at an annual interest rate of 2.00% a year from Banco Pantanal. Carlos opened accounts and is authorized to trade with both banks. Please consider the following statements regarding the procedures to open a SHORT position on the BRL against the MXN (long MXN short BRL). I. The BRL is the funding currency: Carlos will borrow from Pantanal and sell the BRLs to buy MXN at spot St II. Carlos will invest the MXNs with Aztek for one year and then he will use the proceeds to buy BRL Forward Ft to repay Pantanal III. If during the year the MXN depreciates significantly against the BRL Carlos will increase his profit from the short BRL trade IV. The 2.00% rate paid to Pantanal is called the negative carry of the short position

Mark the only CORRECT statements:

a. III. and IV.

b. II. and III.

c. I. and II.

d. I. and IV.